Foreword
A Balanced Approach to Growth and Fiscal Responsibility
Budget 2027 sets out Malaysia’s ambition to grow with confidence while keeping the nation’s finances on a sustainable footing. Framed by the theme “Reaching for the Skies While Anchored on Our Values”, the Budget responds to geopolitical uncertainty, trade tensions, rapid technological change and pressure on public finances with a balanced focus on growth, fiscal responsibility and long-term competitiveness.
Federal Government expenditure is expected to increase by RM15.7 billion, or 3.6%, to RM459.8 billion in 2027. Most of the increase will fund operating expenditure, while development expenditure will rise modestly to RM83 billion.
Although no major new taxes were announced, tax revenue is expected to grow by RM16.3 billion, or 5.8%, from RM280.8 billion in 2026 to RM297.1 billion in 2027. This increase is expected to be supported by effective e-Invoice adoption, broader Sales and Service Tax coverage as well as stronger tax compliance and enforcement.
Importantly, tax revenue is expected to grow faster than Government expenditure, helping to reduce the fiscal deficit from 3.6% of GDP in 2026 to 3.3% in 2027. Put simply, the Government expects higher revenue to support increased public spending without relying as heavily on additional borrowing.
Key Tax Highlights
Targeted Support for Individual Taxpayers
The proposed increase in individual tax relief from RM9,000 to RM12,000 is welcome, particularly as the amount has remained unchanged since 2010. The additional RM3,000 deduction should give taxpayers more disposable income and provide some relief from rising living costs.
Budget 2027 also proposes a one-percentage-point reduction in personal income tax rates for resident taxpayers with chargeable income between RM70,000 and RM150,000. Together with the higher individual tax relief, this should provide meaningful support to middle-income taxpayers. For example, an individual with chargeable income of RM100,000 could save about RM840 in tax, while one with chargeable income of RM150,000 could save about RM1,520. These savings should help households manage their expenses and may also support consumer spending.
Meanwhile, higher-income taxpayers will have to contribute more. The 30% tax rate will apply to chargeable income above RM1 million, rather than only to income above RM2 million. Depending on their chargeable income, affected taxpayers could pay up to RM20,000 more in tax. From a policy perspective, the measure appears intended to partially offset the revenue forgone from the tax reductions granted to middle-income taxpayers while ensuring that higher-income individuals contribute a greater share of overall tax revenue. The proposal therefore reinforces the progressive nature of Malaysia's personal income tax system by shifting part of the tax burden towards those with a greater ability to pay.
Lower Tax Rates for SMEs
Support also extends to MSMEs, which will benefit from lower preferential tax rates. The rate on the first RM150,000 of chargeable income will reduce from 15% to 14%, while the rate on chargeable income between RM150,001 and RM600,000 will reduce from 17% to 16%.
Although these reductions are only one percentage point, the savings can still be meaningful for smaller businesses. A qualifying MSME with RM600,000 of chargeable income would see its tax bill drop from RM99,000 to RM93,000—a saving of RM6,000 a year, or about 6%.
Enhancing Malaysia’s Appeal as a Regional Services Hub
Beyond supporting households and MSMEs, Budget 2027 also seeks to attract regional investment. The 5% corporate tax rate announced for Malaysia’s Global Services Hub (GSH) incentive scheme is a significant enhancement. Coupled with an unprecedented 30-year extension of the incentive period, stamp duty exemption on loans between related companies and withholding tax exemption on interest payments, this incentive is designed to attract multinational corporations (MNCs) to set up their regional or global headquarters, business management, and treasury operations in Malaysia.
Reaching Higher While Staying Grounded
From a broader policy perspective, Budget 2027 is about turning ambition into sustainable progress. Its measures seek to support households and businesses, attract investment and strengthen Malaysia’s fiscal position, while laying the foundation for a more productive, innovative and resilient economy.
The theme “Reaching for the Skies While Anchored on Our Values” captures the balance Malaysia must maintain. We should pursue growth and transformation with confidence, but remain grounded in sound governance, fiscal responsibility and inclusive growth. These are the anchors that will enable Malaysia to scale greater heights and ensure that progress is both meaningful and lasting.
Sim Kwang Gek is the Malaysia Tax Leader of Deloitte Malaysia. The above views are her own.
