Malaysia’s Tax Budget 2026: A Confident Step for the Economy and Rakyat 🇲🇾✨
Malaysia’s Tax Budget 2026, unveiled on 10 October 2025, is a pivotal budget as the first under the 13th Malaysia Plan (13MP). Continuing the MADANI economic framework, the government aims for economic growth of between 4% and 4.5% in 2026, alongside a reduced fiscal deficit of 3.5%. The tax proposals within this budget are geared towards fiscal resilience, supporting families, driving strategic investments, and promoting a green and digital transformation.
Here is an elaboration of the key tax highlights, with a specific focus on the measures designed for individuals.
👨👩👧👦 Personal Income Tax: Enhanced Reliefs for the Rakyat
The following individual income tax measures are all effective from the Year of Assessment (YA) 2026, unless stated otherwise. These reliefs are designed to enhance social protection and ease the cost-of-living burden for working families.
| Relief Category | Previous Scope | Budget 2026 Expansion / Change | Key Detail & Rationale |
| Childcare / Kindergarten Fees | Up to RM3,000 for children up to six years of age. | Expanded to include fees paid to registered daycare centres or transit centres. | The age limit is extended to children up to 12 years of age. This supports working parents, particularly encouraging women's workforce participation. |
| Disability / Rehabilitation | Up to RM6,000 for expenses (screening, early intervention, ongoing rehabilitation) for children with disabilities aged 18 and below. | Relief amount is increased from RM6,000 to RM10,000. | Aims to further support early intervention programmes and rehabilitation treatment for children with learning disabilities. |
| Vaccination Expenses | Up to RM1,000 for qualifying vaccination expenses for self, spouse, or child, covering a specified list of vaccines. | Expanded to cover all vaccines registered with and approved by the Ministry of Health. | Promotes vaccination as a key preventive healthcare measure and supports the national health system. |
| Life Insurance / Takaful | Up to RM3,000 on life insurance premium payments or takaful contributions for self and spouse. | Expanded to include children. | Intended to further encourage the uptake of life insurance or takaful contributions for children. |
| Sustainable Lifestyle / CCTV | Up to RM2,500 (previously for EV charging facilities, etc.). | Expanded to include the purchase of household food waste grinders and Closed-Circuit Television (CCTV) for home use. | The relief can be claimed once in either YA 2026 or YA 2027. This promotes a sustainable and safe lifestyle. |
| Domestic Tourism (VMY 2026) | New Relief | A special RM1,000 tax relief will be given for expenses relating to entrance fees to local tourism attractions and cultural programs. | Applicable for YA 2026 only, in support of Visit Malaysia Year 2026 (VMY 2026). |
| LLP Profit Distributions | Profit distributions from a Limited Liability Partnership (LLP) were previously exempt from tax. | Profit distributions exceeding RM100,000 per annum received by individual partners (resident or non-resident) will be subject to a 2% tax. | This 2% tax previously only applied to dividend income of individuals received from companies. |
🏢 Corporate & Strategic Tax Initiatives
1. Attracting High-Value Investment
- New Investment Incentive Framework: The pilot phase continues until the end of 2025. Full implementation for the manufacturing sector is scheduled for Q1 2026, and for the services sector in Q2 2026.
2. Global Tax Compliance & Capital Flows
- Foreign-Sourced Income Extensions: The tax exemption on foreign-sourced dividend income (FSDI) received in Malaysia is extended to 31 December 2030 for certain categories of taxpayers. From 1 January 2027 to 31 December 2030, this exemption will also apply to co-operative societies and trust bodies.
- Foreign Capital Assets: Tax exemption on gains from the disposal of foreign capital assets received in Malaysia by certain categories of taxpayers is also extended to 31 December 2030.
- Carbon Tax: The introduction of a carbon tax is reiterated for 2026, with an initial focus on the iron, steel, and energy sectors.
3. Incentives for MSMEs and Green Technology
- AI and Cybersecurity Training: An additional 50% tax deduction will be given to MSMEs on training costs related to AI and cybersecurity recognized by the MyMahir National AI Council for Industry (NAICI).
- Green Technology: A 100% Green Investment Tax Allowance is offered for companies that use green technology products in their local supply chains, provided they are certified by the MyHIJAU Mark.
- Food Production: Companies undertaking new food production projects will receive 100% tax exemption on statutory income for 10 years. For existing companies undertaking expansion, the exemption is for five years.
- Commercial-to-Residential Conversion: A special deduction equal to 10% of qualifying expenses (capped at RM10 million) will be given for the renovation and conversion of commercial buildings into residential premises.
4. Education and Social Support
- Scholarship Double Deduction: The double deduction for scholarship expenses is expanded to cover professional qualifications, including in the fields of Information and Communications Technology (ICT), engineering, accounting, and finance.
- OKU Care Worker Training: The double deduction for companies sponsoring training for persons with disabilities is extended to include sponsorship of care worker training programs recognized by the Ministry of Women, Family and Community Development.
🚚 Indirect Tax and Stamp Duty Adjustments
1. Excise and Customs Duties
- Alcohol and Tobacco: Excise duty on alcoholic beverages will be increased by 10% with effect from 1 November 2025. Excise duty on cigarettes and other tobacco products will also be increased from 1 November 2025.
- Langkawi/Labuan Vehicles: From 1 January 2026, Sales Tax and customs duties will be imposed on vehicles exceeding RM300,000 in value imported or brought into Langkawi or Labuan.
- Nicotine Replacement Therapy: Exemptions on Sales Tax and import duty for nicotine replacement therapy products are extended to 31 December 2027 and expanded to include nicotine mists and lozenges.
- Taxis/Rental Cars: 100% Sales Tax and excise duty exemptions continue for taxi owners and rental car operators acquiring PROTON and PERODUA cars.
- Digital Tax Stamps: Digital tax stamps with enhanced security features will be introduced to curb counterfeiting and leakage at import entry points.
2. Stamp Duty Changes
- Foreign Buyer Property Stamp Duty: The stamp duty rate on instruments of transfer of residential property to non-citizen individuals (except permanent residents) and foreign companies will be increased from 4% to 8%. This takes effect from 1 January 2026.
- First-Home Exemption: The stamp duty exemption on instruments of transfer and loan agreements for the purchase of a first home worth up to RM500,000 is extended to 31 December 2027.
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Employment Contracts: Employment contracts for a monthly remuneration of RM3,000 or less will be exempt from stamp duty, for contracts executed from 1 January 2026.
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