PwC’s statement: Budget 2027

Budget 2027 was a welcomed shift from the previous year’s approach. Whereas Budget 2026 largely refrained from introducing new revenue-raising measures, the fifth MADANI Budget goes a step further by putting money back into taxpayers’ pockets. Building on the two-percentage point cut for middle-income bands in 2023, personal income tax rates for the middle-income group are once again reduced while personal relief which has not been reviewed since 2010 has been increased. Beyond households, Budget 2027 also extends support to small and medium-sized enterprises (SMEs) through reduced income tax rates while continuing to strengthen tax compliance efforts.

At RM510 billion against RM470 billion this year, an increase of RM40 billion or roughly 8.5%, the Budget remains expansionary, and yet, remarkably, the fiscal deficit is still projected to narrow from 3.6% in 2026 to 3.3% in 2027, on the path towards 3% by 2028. To expand spending and cut taxes while still reducing the deficit amid ongoing geopolitical volatilities, elevated oil prices, and global trade uncertainty, is no small achievement.

Tax fiscal policy—giving back, with discipline

The logic of Budget 2027 is clear. Savings from subsidy targeting and stronger revenue collection are passed back to the rakyat and businesses, without loosening fiscal discipline. Federal revenue for 2026 is now projected at RM363.6 billion, RM20.5 billion above the original estimate of RM343.1 billion and is expected to rise further to RM380.8 billion in 2027. This extra revenue pays for the tax cuts, even with fuel subsidies expected to stay high at RM40 billion on the back of ongoing geopolitical uncertainties. I welcome the progressive design of these measures. Relief goes mainly to the middle-income and SME segments, while the tax rate for individuals earning above RM1 million is adjusted to 30%.

Easing the cost of living for the rakyat

The government has listened to the M40 sentiments. The individual tax relief of RM9,000, unchanged since 2010, is raised to RM12,000, and resident individual tax rates are reduced by one percentage point, to 18% for chargeable income from RM70,001 to RM100,000 and to 24% for income from RM100,001 to RM150,000. The government estimates that these changes will put up to RM1,600 of additional disposable income in the hands of around five million taxpayers. Reliefs are also widened to match how Malaysians spend today. Medical relief now covers postnatal care while parental care extends to all care expenses. Education relief covers all fields of study and children’s tuition, and lifestyle related reliefs now include artificial intelligence (AI) subscriptions, sport shoes, and pet adoption costs—a thoughtful mix that supports our increasingly digital lives while promoting physical activity and emotional wellbeing.

Beyond tax, Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah (STR and SARA) increases to RM16 billion from RM15 billion, and the minimum wage rises from RM1,700 to RM2,000 from June 2027, with micro, small and medium enterprises (MSMEs) with sales below RM50 million exempted to allow time to adjust their business models.

Fuelling SMEs as the engine for growth

SMEs, who contribute around 40% of the economy and employ about half of the workforce, gain the most from this Budget. The SME income tax rate is cut by one percentage point, to 14% on the first RM150,000 of chargeable income and to 16% on income between RM150,000 and RM600,000. This could translate to total savings of RM6,000 a year, benefiting some 300,000 SMEs. The small value asset threshold for capital allowances is raised to RM3,000, accelerated capital allowance on local plant, machinery and information and communications technology equipment is extended to 31 December 2030, and the RM10 stamp duty flat rate on peer-to-peer (P2P) financing and on certain credit facilities will ease cash flow. Together with financing guarantees of up to RM32 billion through Syarikat Jaminan Pembiayaan Perniagaan Berhad (SJPP) and Credit Guarantee Corporation Berhad (CGC), these measures will help SMEs absorb rising operating costs, including the higher minimum wage.

Tax enforcement continues

The push for accountability set out last year continues. Non-SME companies will only be able to claim a tax deduction for salary expenses if wages are paid through bank accounts via the channels permitted under the Employment Act 1955, a measure targeting the employment of undocumented foreign workers. Enforcement agencies receive RM1.1 billion to strengthen their operational capacity, and the Government Procurement Act takes effect from 2027. Beyond just an administrative issue, businesses should see payroll records and documentation as a tax matter as well as a human resource imperative, and will need clear guidance on how these conditions will be applied and audited.

Tax incentives for strategic sectors

With approved investments of RM218.5 billion in the first half of 2026, up 11.7%, Budget 2027 improves what Malaysia offers regional and global businesses. The standout measure is the enhanced Global Services Hub incentive, which offers a 5% special tax rate for up to 30 years, three times the current maximum, or twice what the Johor-Singapore Special Economic Zone (JS-SEZ) equivalent offers. This gives groups the long-term certainty to locate regional headquarters, shared services, and treasury centres in Malaysia.

Financial services gain a longer runway for growth. Shariah-compliant fund managers receive a 40% income tax exemption for year of assessments 2028 to 2030, sukuk issuers can deduct their issuance costs, and Single Family Offices in Forest City enjoy zero tax on qualifying income, with a new Multi-Family Office model to follow. Together, these give fund managers, family offices, and Islamic finance players clear reasons to build their operations in Malaysia.

Corporates investing in local capability also benefit. Local shipping companies keep their full tax exemption until the year of assessment 2036, with a fixed stamp duty on ship financing. The Green Investment Tax Allowance (GITA) of up to 100% is extended to 31 December 2030. Additionally, wholly locally owned automotive vendor companies moving to the Automotive Hi-Tech Valley can deduct up to RM5 million of relocation costs, while companies running Bakat MADANI training programmes receive a tax deduction. These measures lower the cost of investing in ships, green assets, supply chains, and skills.

Property related measures

Budget 2027 extends and expands last year’s first-home relief. For homes priced up to RM750,000, stamp duty on loan agreements and instruments of transfer is fully exempt on the first RM500,000, while the balance qualifies for a 50% exemption, for sale and purchase agreements executed from 1 January 2027 to 31 December 2030. Say for a first home worth RM670,000, this means stamp duty relief on the full RM500,000 and half of the remaining RM170,000. I particularly welcome the full stamp duty exemption for rescue contractors, developers, and original purchasers of abandoned housing projects, a practical step towards the target of zero abandoned projects by 2030. Skim Jaminan Kredit Perumahan (SJKP)’s housing financing guarantees of up to RM20 billion will also help around 80,000 first-time buyers, particularly the self-employed.

As Malaysia enters the second year of the 13th Malaysia Plan, I am encouraged that Budget 2027 gives back to taxpayers while keeping public finances in check. Much will depend on timely legislation and clear guidelines, and I look forward to the details so that businesses and the rakyat can plan ahead.

Steve Chia
PwC Malaysia Tax Leader 

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