There is a growing sentiment that there will unlikely be any sweeping new taxes in Budget 2027, however stronger enforcement, wider e-invoicing adoption and refinements to existing taxes will offer more immediate opportunities to raise government revenue, according to tax expert Dr Veerinderjeet Singh.
The KPMG senior adviser on tax policy said the government is likely to remain conscious of cost-of-living pressures and its social agenda, limiting the appetite for substantial tax increases when Budget 2027 is tabled in Parliament on Oct 9. The government has similarly identified protecting households from rising living costs as one of the budget’s central priorities.
The report carried out by CIMB Securities highlighted that his central argument was that Malaysia should first “sweat our assets” — collecting more effectively from existing taxes and taxpayers — before turning to major new revenue instruments.
This would require greater investment in the Inland Revenue Board and Customs, particularly in data analytics to identify businesses outside the tax net and under-reporting among existing taxpayers.
GST Return Unlikely
Veerinderjeet does not expect the Goods and Services Tax (GST) to return in Budget 2027.
He estimated that the current Sales and Service Tax (SST) regime already covers about 78% to 80% of goods and services, approaching the breadth previously covered by GST.
Instead, he sees greater scope to improve the efficiency of SST, including considering broader exemptions for business inputs to reduce tax cascading along supply chains.
Such relief would, however, involve a trade-off because it would also reduce some government revenue.
E-invoicing is expected to become increasingly important in improving compliance and identifying previously unreported taxable activity. Malaysia’s rollout has already been implemented progressively across businesses according to annual turnover, with the framework most recently updated in August.
Veerinderjeet said wider participation could help bring more businesses into the tax system, although policymakers must recognise the technology and compliance costs faced by smaller companies.
No Dividend Tax Hike, CGT Expansion Expected
Budget 2027 is also unlikely to raise the existing 2% tax on annual dividend income exceeding RM100,000, although Veerinderjeet believes the rate could potentially increase over the longer term.
Similarly, he does not expect capital gains tax to be extended to listed shares in the near term. Malaysia currently imposes CGT on specified disposals of unlisted shares by companies, with the regime having taken effect from March 2024.
A further increase in Malaysia’s 30% top personal income tax rate also appears unlikely given regional competitiveness considerations.
No new windfall tax is expected, including on commodity sectors, while modest increases in alcohol and tobacco excise duties remain a possibility because demand for these products tends to be relatively inelastic.
Carbon Tax Could Be Delayed
Carbon pricing remains on the policy agenda, but Veerinderjeet believes current business cost pressures could push implementation to 2028 or later.
Budget 2027 may therefore reaffirm Malaysia’s intention to introduce carbon taxation without committing to an immediate implementation date. When eventually introduced, he expects the initial rate to be relatively low to limit the burden on companies.
The Global Minimum Tax is similarly unlikely to deliver substantial additional revenue immediately, with the first filing cycle needed before its actual contribution can be properly assessed.
Broader Tax Base Needed For Long-Term Revenue
Beyond Budget 2027, Veerinderjeet said Malaysia needs a broader tax base if it wants to lift its tax-to-GDP ratio towards 15%.
He estimated that only around 15% to 16% of the workforce currently pays personal income tax, making sustained wage growth important to expanding the taxpayer base over time.
Corporate tax reform could meanwhile include reviewing special and double deductions that have existed for decades and determining whether they still achieve their original objectives.
Removing outdated deductions could broaden the tax base and potentially create room for a lower headline corporate tax rate, while investment incentives should increasingly be evaluated according to the economic outcomes they generate.
Overall, Veerinderjeet sees better collection, stronger data analytics, wider compliance and expenditure discipline as more realistic near-term fiscal tools than introducing another round of major taxes.
CIMB noted that the message heading into Budget 2027 is consequently one of refinement rather than wholesale tax reform: improve the taxes Malaysia already has, widen the underlying revenue base over time and ensure government spending is managed more effectively.
