The Malaysia Budget 2025, or ‘Belanjawan 2025,’ was unveiled on Friday, 18 October 2024, by Prime Minister Datuk Seri Anwar Ibrahim. This year’s budget is the largest to date, totaling RM421 billion. Highlights include a minimum wage hike, an expanded service tax, tax incentives to support high-value activities, and more.
For businesses and HR professionals in Malaysia, here are the essential updates you need to know:
The Expansion of Tax Schemes
Prime Minister Anwar Ibrahim announced improvements to the Sales Tax and Service Tax (SST) in the hopes of making them more progressive:
- Sales Tax (Cukai Jualan (CJ)):
- Basic food items will remain exempted.
- Non-essential imported premium goods will be subject to CJ.
- Service Tax (Cukai Perkhidmatan (CP)):
- CP is set to cover more commercial services.
For personal tax:
- A 2% tax will apply to dividend income exceeding RM100,000, effective from the 2025 assessment year.
- Exemptions apply to dividend income from sources such as the EPF, share trusts under PNB, and foreign investments.
Wage Reforms and Income Support Initiatives
The government has introduced a series of initiatives to raise wages and support income growth for workers and vulnerable communities.
Key highlights include:
- Increase in minimum wage from RM1,500 to RM1,700 per month, effective 1 February 2025.
- RM200 million allocated for the Progressive Wage Policy, aimed at labour market reform to boost workers’ income, with full implementation planned for 2025.
- RM250 million provided to increase B40 citizen participation in the People’s Income Initiative (IPR) programme, supporting income growth for low-income groups.
- The government has increased the matching incentive rate for the i-Saraan programme from 15 percent to 20 percent of an individual’s total annual contribution. The incentive is capped at RM500 per year, with a lifetime maximum of RM5,000.
Driving High-Value Growth with Targeted Tax Incentives
The New Investment Incentive Framework shifts the focus from product-specific incentives to high-value activities. This will be implemented in Q3 2025.
Key initiatives include:
- Expanding incentives for the Electrical & Electronics (E&E) sector
- Promoting high-income job opportunities in artificial intelligence (AI)
- Tackling regional economic disparities
- Driving investments based on Environmental, Social, and Governance (ESG) principles
- Supporting MNEs and their local suppliers in enhancing supply chain resilience
Expanded Tax Relief for Families, Caregivers, and the Elderly
The government has introduced expanded tax relief measures to support families, caregivers, and the elderly, while encouraging employers to assist employees with caregiving responsibilities.
Key updates include:
- Support for Elderly and Family Care:
- Medical examination relief for parents now includes the cost of vaccinations.
- Sports and equipment tax exemptions extended to cover parents.
- Medical treatment tax relief expanded to include grandparents.
- Childcare allowance exemptions now cover elderly care (including parents and grandparents).
- Additional deductions for employers providing caregiving allowances extended to cover elderly care.
- Increased Relief for Disabled Individuals and
Families:
- Disabled taxpayers’ relief increased to RM7,000.
- Spousal relief for disabled husbands or wives raised to RM6,000.
- Relief for disabled children (unmarried) increased to RM8,000.
Incentives for Employers Supporting Flexible Work and Inclusive Employment
The government is expanding initiatives to encourage businesses to adopt flexible working arrangements and tap into underutilised talent pools.
Key measures include:
- Second Chance Policy Extension:
- This initiative, originally aimed at helping individuals with small-scale debts, is now extended to bankrupt companies, providing them with a fresh start.
- Tax Incentives for Employers:
- 50% additional tax deduction on costs related to capacity building and software procurement for businesses implementing flexible work arrangements.
- 50% additional tax deduction for 12 months for employers hiring women returning to the workforce.
- 50% additional tax deduction for employers offering up to 12 months of paid care leave for employees supporting sick or disabled children or family members.
- Rehabilitation Centre Initiative:
- SOCSO will invest nearly RM600 million to establish a Rehabilitation Centre on the East Coast, providing comprehensive services, including rehabilitation treatment, to ensure affected employees can return to work smoothly.
Updates to EPF Contributions and Social Security Schemes
The government has introduced several key changes to EPF contributions and social security programmes to enhance retirement savings and better support workers across different sectors.
Key updates include:
- Non-citizen workers will now be required to contribute to the EPF, with the contribution rate determined by their employment contract status (new or existing).
- The EPF is reviewing its scheme to allow members to transfer a portion of their savings to the EPF accounts of immediate family members, promoting an inter-generational transfer approach.
- Individual income tax relief on contributions to Private Retirement Schemes and deferred annuity premium payments will be extended until the 2030 assessment year.
- RM100 million has been allocated to cover 70% of the Self-Employed Social Security Scheme contributions for gig workers, ahead of the mandatory contribution requirement for vocational licence renewal starting in 2025.
- The i-Suri programme will continue with matching contributions from the government and active contributors to support retirement savings for informal workers.
Enhanced Individual Income Tax Reliefs
The government has announced new income tax relief measures to ease financial burdens and encourage savings in health, education, and housing.
Key updates include:
- The income tax exemption on Foreign Source Income (FSI) has been extended until 31 December 2036.
- Tax exemption of up to RM10,000 will be available for medical expenses under health insurance and takaful products with co-payment features.
- Tax relief for education insurance and medical insurance premium payments will increase to RM4,000.
- Tax relief of up to RM7,000 will be provided on housing loan interest for agreements made between 1 January 2025 and 31 December 2027.
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For further information on Belanjawan 2025 Malaysia Madani, please head over to the official government website: https://belanjawan.mof.gov.my/en/