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Key Tax Proposals

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​​​​​​​Foreign-Sourced Income

Extension of foreign-sourced income exemption

​It is proposed that the scope of tax exemption on foreign-sourced dividend income and foreign-sourced capital gains be expanded to include resident cooperative societies and trust bodies for a period of four years, from 1 January 2027 to 31 December 2030.
        
In addition, the tax exemption period on foreign-sourced dividend income and foreign-sourced capital gains received in Malaysia by resident companies and LLPs, as well as foreign-sourced income received by unit trusts, will be extended for an additional four years, covering the period from 1 January 2027 to 31 December 2030.
      

Individual Tax

Tax on profit distributions received by partners in an LLP

It is proposed that income tax will be imposed on profit distributions from LLPs received by individual partners, effective from YA  2026. The proposal applies to both resident and non-resident individual partners where annual profit distributions exceed RM100,000.
       
A 2 % tax rate will apply to the chargeable income derived from such distributions, after taking into account allowable reliefs and deductions, in accordance with a prescribed formula. Individual partners will be required to report the profit distributions received from LLPs in their Income Tax Return Forms for the relevant basis year. 

Expansion and enhancement of tax reliefs

​Effective from YA 2026, the following reliefs will be reviewed:
   
​Expansion​
​Tax Reliefs
​Description
​Childcare or​ Kindergarten
​The childcare fee tax relief will be consolidated into a single relief of up to RM3,000, combining the existing RM2,000 and additional RM1,000 reliefs. The scope is expanded to include daily care centres and after-school transit centres registered with the Department of Social Welfare for children aged up to 12 years.
​Vaccination Expenses
​The existing tax relief of up to RM1,000 for vaccination expenses incurred for self, spouse, or children will be expanded to cover all vaccines registered and approved by the National Pharmaceutical Regulatory Agen-cy, Ministry of Health.
​Life, Education and Medical Insurance Premiums
​The scope of tax relief for life insurance premiums or takaful contributions for self or spouse will be expanded to include children. Eligible children include: 
(i) unmarried children below 18 years; 
(ii) unmarried children aged 18 and above pursuing tertiary education; and
(iii) unmarried children with disabilities (no age limit).
​Environmental Sustainability and Home Safety-Related Expenditure
​The tax relief of up to RM2,500 for the purchase of EV charging facilities and food composting machines will be expanded to include household food waste grinders and home-use Closed-circuit television (“CCTV”) systems. The relief for these items is claimable once within two consecutive YAs, effective from YA 2026 to YA 2027.
    
        
​Enhancement​
​Tax Relief
​Description
​Early intervention programmes or rehabilitation treatment for children with earning disabilities
​The tax relief ceiling will be increased from RM6,000 to RM10,000 for expenses related to assessment, diagnosis, early intervention, and rehabilitation treatment for children aged 18 years and below with learning disabilities such as autism, ADHD, GDD, intellectual disability, Down syndrome, and specific learning disorders. The overall individual medical treatment relief limit remains at RM10,000.
​Entrance fees to tourist attractions and cultural programmes
​The tax relief of up to RM1,000 for entrance fees will be given to cover visits to museums, theme parks, national and marine parks, zoos, geoparks, as well as cultural and arts programmes.​
      

Tax Incentives

Accelerated Capital allowances (ACA) on capital expenditure for plant, machinery and informaiton technology (ICT) equipment

​It is proposed that an ACA comprising an initial allowance of 20 % and an annual allowance of 40 % be granted on qualifying capital expenditure incurred between 11 October 2025 and 31 December 2026. The qualifying expenditure includes the following:
  1. ​Procurement of heavy machinery from local manufacturers;
  2. Procurement of plant and general machinery acquired from local manufacturers;
  3. Purchase of ICT equipment and computer software; and
  4. Consultation, licensing, and incidental fees related to customised computer software development.
     

ACA on the cost of purchasing Speed Limitation Devices (“SLD”) for heavy vehicles

To support the Government’s initiative in reducing road accidents through the installation of SLD on heavy vehicles, it is proposed that an ACA be granted on expenditure incurred for the purchase of SLDs, up to RM4,000 per unit, subject to the following conditions:
     
 1. The SLD retrofit installation must be certified by a Verification Body recognised by the Road Transport 
     Department (JPJ).
   
2. The installation of SLD devices applies to heavy vehicles manufactured before 1 January 2015 that are 
    not already equipped with such devices, and are limited to the following categories: 
    • Goods vehicles with a Gross Vehicle Weight (“GVW”) exceeding 3,500 kg; and
    • Passenger vehicles with a GVW exceeding 5,000 kg and designed to carry more than eight passengers.
3. The ACA is not claimable for the replacement of existing SLD units.
     
The ACA, consisting of an initial allowance of 20 % and an annual allowance of 80%, will apply to SLD installations carried out between 1 January 2026 and 31 December 2026.
     

Special tax deduction for conversion and renova-tion of commercial into residential premises

​The Government proposes to grant a special tax deduction equivalent to 10 % of qualifying expenditure, capped at RM10 million, for expenses incurred in converting or renovating commercial buildings into residential premises.
      

Further tax deduction for expenses incurred on AI and cybersecurity training

To promote the adoption of AI, it is proposed that expenses incurred by Micro, Small, and Medium Enterprises (“MSMEs”), including those registered with the Human Resources Development Fund (“HRDF”), on training related to AI and cybersecurity recognised by the MyMahir National AI Council for Industry (“NAICI”), be granted an additional tax deduction of 50 % once every two years.
This incentive shall apply to applications submitted to Talent Corporation Malaysia Berhad between 1 January 2026 and 31 December 2027.
      

Review of income tax deduction for cost of listing on Bursa Malaysia

It is proposed that the existing tax deduction of up to RM1.5 million in respect of expenses incurred for listing on Bursa Malaysia’s Main Market, ACE Market, and LEAP Market by technology-based companies and MSMEs be extended for a further period of five years, from YA 2026 to YA 2030.
      
In addition, the scope of eligible MSMEs for this tax deduction will be expanded to include those operating in the energy and utilities sectors.
     
The qualifying listing-related expenses are as follows:
  1. Fees payable to Bursa Malaysia and the Securities Commission Malaysia;
  2. Professional fees; and
  3. Underwriting, placement, and brokerage fees.
     

Income tax exemption on Sustainable and Responsible Investment (“SRI”) sukuk and bond grant scheme

​To further promote the issuance of SRI sukuk and bonds that align with green, social, and sustainability standards in Malaysia, it is proposed that:
  1. the grant allocation for external review ex-penses be increased from 90 % to 100 %, subject to a maximum grant amount of RM300,000;
  2. the scope of eligible financial instruments under the SRI Sukuk and Bond Grant Scheme be expanded to include sukuk and bonds that comply with the ASEAN Taxonomy for Sustainable Finance; and
  3. the existing income tax exemption be extended for an additional period of three years.
   ​
These proposals shall apply to applications submitted to the Securities Commission Malaysia (“SC”) under the SRI Sukuk and Bond Grant Scheme from 1 January 2026 to 31 December 2028.
     

​Expansion of double tax deduction for training care worker

​It is proposed that the existing double tax deduction for companies sponsoring training pro-grammes for non-employee persons with disabilities be expanded to include the sponsorship of non-employee care workers to attend training programmes conducted by institutions recognised by the Ministry of Women, Family and Community Development.
     
This proposed expansion shall be applicable for YA 2026 and YA 2027.
      

Extension of further tax deduction for costs incurred for employing vulnerable persons

It is proposed that the existing further tax deduction on expenses incurred for employing vulnerable individuals be extended for an additional period of five years, from YA 2026 to YA 2030.
     
In addition, the scope of eligible employees under this incentive will be expanded to include the following categories:
  1. Prisoners released on licence under the Prisons Act 1995; and
  2. Drug or substance dependants and misusers undergoing treatment and rehabilitation under the Drug and Substance Dependants and Misusers (Treatment and Rehabilitation) Act 1983.
     

Extension of further tax deduction for hiring senior citizens

​Further tax deduction for employers hiring senior citizens aged 60 years and above will be extended to YA 2026 to YA 2030, subject to fulfilling the qualifying conditions.
        

Review of tax incentive for scholarships

It is proposed that the existing double tax deduction for scholarships awarded by companies be extended for a further period of five years, from YA 2026 to YA 2030. 
       
In addition, the scope of eligible scholarships will be expanded to include the following:
  1. Students pursuing technical and vocational certificate, diploma, or bachelor’s degree programmes; and 
  2. Students undertaking qualified professional certification courses.
      
Furthermore, the household income eligibility criterion for such scholarships will be revised, with the maximum household income threshold increased to RM15,000 per month.
       

Double tax deduction for expenses on scholar-ships awarded to eligible students

It is proposed that the existing double tax deduction for expenses incurred by the private sector in awarding scholarships to eligible students be expanded to include scholarships for the pursuit of professional qualifications in fields such as ICT, engineering, accounting, finance, and other related disciplines.
      

Tax treatment for public university teaching hospitals endowment funds

​It is proposed that, with effect from YA 2026, public university teaching hospitals be permitted to establish endowment funds, whereby cash contributions made to such funds shall qualify for tax deduction under Section 44(11D) of the Income Tax Act 1967 (“ITA”), provided that the endowment funds are governed and managed solely by the respective public university teaching hospitals in accordance with the prescribed guidelines.
      
Contributions received, as well as income generated from the endowment funds, shall be exempt from income tax.

Donors contributing to these endowment funds shall be eligible for a tax deduction equivalent to the amount of their contribution, subject to a maximum of 10 % of their aggregate income, inclusive of approved donations made under Sections 44(6), 44(11B), and 44(11C) of the ITA.

Hospital Welfare Funds managed by companies limited by guarantee

It is proposed that private hospitals that establish hospital welfare funds, which are managed by a company limited by guarantee, be eligible for income tax exemption on income received by such welfare funds.
      
In addition, donors contributing to these hospital welfare funds shall be eligible for tax deductions in respect of their contributions.
       
The specific effective date of this proposal will be announced in due course.
      

Tax deduction for donation to approved anti-corruption education programmes organised by Civil Society Organisations (“CSOs”)

Under Section 44(11C) of the ITA, the scope of projects of national interest will be expanded to include approved anti-corruption education programmes organised by CSOs.
       
These programmes must fulfil the following conditions:
  1. ​Recognised by the Malaysian Anti-Corruption Commission (“MACC”);
  2. Provide benefits to the public and do not involve sensitive issues such as politics, race, or religion;
  3. Not profit-driven and do not impose participation fees; and
  4. Implemented within the period from 1 January 2026 to 31 December 2028.
      
Donations made towards such approved programmes will qualify for tax deduction under Section 44(11C) of the ITA, subject to a maximum of 10 % of aggregate income, inclusive of approved donations made under Sections 44(6), 44(11B), and 44(11D) of the ITA.
       
This incentive shall apply to applications submitted to the Ministry of Finance (“MoF”) between 1 January 2026 and 31 December 2028.
      

Tax deduction for cash contributions made by individuals and corporations to trust account of the Department of Museums Malaysia

​Cash contributions made by individuals or corporations to the trust account of the Department of Museums Malaysia shall be eligible for income tax deduction in accordance with the relevant provisions of the ITA.
       
Similarly, donors contributing to hospital welfare funds established and managed by private hospitals shall also be eligible for tax deductions in respect of their contributions.
       

Tax deduction for contribution to programmes MADANI Adopted Village, MADANI Adopted School and Sejahtera MADANI

​Contribution to programmes MADANI Adopted Village, MADANI Adopted School and Sejahtera MADANI by company and individual with business income will be eligible for income tax deduction.
     

Extension of income tax exemption for Social Enterprises (“SE”)

​To support the development of social entrepreneurship, create job opportunities and reduce dependency on government assistance, income tax exemption is given on all income of SE accredited by the Ministry of Entrepreneur Development and Cooperatives up to three consecutive years (i.e., from 1 January 2022 to 31 December 2025).
       
It is proposed application period for income tax exemption of SE be extended for three years for applications received by the MoF from 1 January 2026 to 31 December 2028. 
      

Tax incentive for food security projects (previ-ously known as food production Projects)

​To ensure national food security remains sustainable through greater participation of industry players in the agriculture sector, it is proposed tax incentives for companies implement​ing food security projects be provided as follows:
    
​Eligible Companies
​Tax Incentives
​Companies engaging in new projects
​100 % income tax exemption* on statutory income for 10 years of assessment
​Existing companies undertaking expansion projects
​100 % income tax exemption* on statutory income for 5 years of assessment

*The income tax exemption to be given on income generated from domestic sales. 
      
The tax incentive is effective for applications received by Ministry of Agriculture and Food Security (“KPKM”) from 1 January 2026 to 31 December 2030.
     

Tax incentive for automation in the agriculture sector

Currently, tax incentives for livestock farming activities through the closed-house systems are as follows: 
     
1. Tax Incentive for Chicken Rearing in Closed-House System
ACA of 100 % and income tax exemption of 100 % are granted for qualifying capital expenditure in closed-house chicken rearing systems for application to KPKM from 1 January 2023 to 31 December 2025.  
      
2. Tax Incentive for Automation in the Agriculture Sector
ACA of 100 % and income tax exemption of 100 % on the first RM 10 million of qualifying capital expenditure are provided for cropping, livestock framing, apiculture, aquaculture and captured fisheries activities, for applications received by KPKM from 1 January 2023 to 31 December 2027.
      
To ensure the continuity of tax incentive for rearing chicken using the closed-house system and to streamline tax incentives within the livestock farming sector, it is proposed that tax incentive for automation in the agriculture sector be expanded to include rearing chicken using the closed house system for applications for the application received by KPKM from 1 January 2026 to 31 December 2027
      

Extension of tax incentive for commercialisation of Research & Development (“R&D”) findings

To elevate productivity and drive national competitiveness, it is proposed that tax deduction for companies investing in subsidiary companies that commercialise non-resource based R&D findings by public research institutions, public institutes of higher learning and private higher education institutions be extended for five years.
      
This incentive is effective for applications received by the Malaysia Investment Development Authority (“MIDA”) from 1 January 2026 to 31 December 2030.
     

Tax incentive for tour operators

To further encourage tourism operators for Visit Malaysia Year 2026, it is proposed that tour operators be given 100 % tax exemption on the incremental income derived from inbound tourism packages, subject to the following conditions:
  • The operator must bring in at least 1,000 foreign tourists annually; and
  • The incremental income refers to the differ-ence between the qualifying income derived from the business of operating inbound tour-ism packages to Malaysia during the basis period and the income from the preceding basis period.
     
This incentive is effective for YA 2026 and YA 2027.
        

Tax deduction on costs of renovation and refurbishment for tourism projects

​Renovation and refurbishment expenses in-curred for business premises are not allowable for tax deductions under Section 33(1) the ITA.
      
To encourage tourism project operators to up-grade and refurbish their business premises to enhance the quality of domestic tourism product in line with Visit Malaysia Year 2026, it is proposed that tourism project operators registered with Ministry of Tourism, Arts and Culture (“MOTAC”) undertaking renovation and refurbishment works for business purposes to en-hance the quality of domestic tourism product be allowed a tax deduction on qualifying expenditure, up to a maximum of RM500,000.
     
This deduction is for qualifying expenditure incurred from 11 October 2025 to 31 December 2027.
      

Tax incentive for organising international incentive trips, conferences and trade exhibitions

Effective from YA 2026 to YA 2027, companies, associations or organisations verified by MOTAC that promote and organising conferences are given 100 % income tax exemption on statutory income subject to bringing in: 
  • At least 1,500 foreign participants for incentive trips annually; or 
  • At least 2,000 foreign participants for conferences annually; or 
  • At least 3,000 foreign participants for trade exhibitions annually.
       
Tax incentive for organising arts, cultural, sports and recreational activities
      
To further encourage the organising of arts, cultural, tourism, international sports and recreational activities in conjunction with Visit Malaysia Year 2026, it is proposed that the existing tax incentive be enhanced and extended for two years (i.e., YA 2026 and YA 2027). The enhancements are as follows: 
  • The scope to be expanded to include tourism activities approved by MOTAC (excluding concert performances); 
  • The venue for arts, cultural and tourism activities be broadened to include any location in Malaysia approved by MOTAC; and
  • International sports and recreational competitions approved by Ministry of Youth and Sports.
      

Review of tax incentive for venture capital

With effect from YA 2025, venture capital tax incentives will be reviewed as follows: 

1. Venture Capital Company (“VCC”)
  • Proposed corporate income tax rate of 5 % on all income of the VCC, except for interest / profit income derived from savings, fixed deposits, or deposits. 
  • The VCC is required to invest a minimum of 20 % of its funds in local venture companies.
  • The tax incentive is given for 10 years or for the remaining life of the fund starting from the year the VCC obtains its first certification from SC. 
  • The first certification by SC must be obtained no later than 31 December 2035.
  • This tax incentives for VCC expanded to include entities incorporated under the Limited Liability Partnerships Act 2012 and the Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 which elect to be taxed under the ITA.
    
2. Venture Capital Management Company 
  • ​Proposed tax rate of 10 % on income derived from the share of profits, management fees and performance fees from YA 2025 to YA 2035.
     
3. Individual Shareholders of VCC
  • -Exemption of income tax on dividends paid, credited or distributed to individual shareholders at the first level from YA 2025 to YA 2035.
      

Tax incentive for training of care worker

It is proposed that the scope of double tax deduction for companies sponsoring training for persons with disabilities (“OKU”), be expanded to include sponsorship of non-employee care workers to undergo training programmes in institutions recognised by Ministry of Women, Family and Community Development (“KPWKM”). 
      
The expansion is applicable for YA 2026 to YA 2027. 
     

Indirect Tax

Introduction of digital tax stamps with enhanced security features

​To strengthen enforcement and prevent counter-feiting, an initiative led by the Royal Malaysian Customs Department (“RMCD”) will introduce digital tax stamps with enhanced security features. This measure aims to curb revenue leakages at entry points through monitoring systems such as Centralised Screening Complex equipped with CCTV surveillance. The effective date is yet to be announced. 
      

Tightening of vehicle tax exemption policy in Langkawi and Labuan

​For the purpose of addressing the issue of tax leakage by luxury vehicle owners taking advantage of the vehicle tax exemption facilities in Langkawi and Labuan, it is proposed that such exemptions be limited to vehicles with a value not exceeding RM300,000, effective 1 January 2026. 
      

Extension of excise duty and sales tax exemption on national car purchases by taxi and private hire car owners

​It is proposed that the existing 100 % excise duty and sales tax exemption will continue to apply to the purchase of new national cars, i.e. PROTON and PERODUA, by taxi owners and private hire car owners.
      

Increase in excise duty on cigarettes and other tobacco products

Aligned with Malaysia’s commitment as a signatory to the World Health Organization (“WHO”) Framework Convention on Tobacco Control (“FCTC”) and as part of the Government’s con-tinued efforts to curb the consumption of smoking products for the health and well-being of the Rakyat, it is proposed that excise duty rates on the following smoking products be increased in phases, effective 1 November 2025, as detailed below:
    
​Products
​Tariff Codes
​Current Excise Duty
​Proposed Excise Duty
​Cigarettes
​2402.20.2000
2402.20.9000
2402.90.2000
​40 sen per stick or RM8 per packet
​42 sen per stick or RM8.40 per packet
​Cigars, cheroots and
cigarillos
​2402.10.0000
2402.90.1000
​RM400 per kg
​RM440 per kg
​Heated tobacco
products
​2404.11.0000
​RM778 per kg of
tobacco content
​RM798 per kg of
tobacco content
    

Extension of import duty and sales tax exemption on Nicotine Replacement Therapy (“NRT”) products

It is proposed that the import duty and sales tax exemption on nicotine gum and nicotine patches be extended until 31 December 2027.
     
Further, the scope of exemption will be expanded to include nicotine mist and nicotine lozenges, effective from 11 October 2025 to 31 Decem-ber 2027.
       
These exemptions are effective for applications received by the MoF from 11 October 2025 to 31 December 2027.
        

Increase in excise duty rate on alcoholic beverages

​To reduce access to alcoholic beverages and promote a healthier lifestyle, it is proposed that the excise duty rate on alcoholic beverages to be increased by 10 %, effective from 1 November 2025.
   

Stamp Duty

Review of wage threshold for stamp duty exemption on employment contract

​It is proposed that the monthly wage threshold for stamp duty exemption on employment contracts will be increased from RM300 to RM3,000, effective for employment contracts executed from 1 January 2026.
     

Extension of stamp duty exemption for instruments of transfer and loan agreements for the purchase of first residential home

It is proposed that the existing stamp duty exemption on instruments of transfer and loan agreements for the purchase of first residential home valued up to RM500,000 by Malaysian citizens be extended for two years. The exemption applies to sales and purchase agreements executed from 1 January 2026 to 31 December 2027​.
     

Extension of stamp duty exemption on insurance policies or takaful certificates with low annual premium / contribution

​The 100 % stamp duty exemption on insurance policies or takaful certificates with low annual premium or contribution purchased by individu​als or MSMEs shall be extended for an additional three years. This exemption will apply to insurance policies or takaful certificates issued from 1 January 2026 to 31 December 2028.
     

Extension of stamp duty exemption for Perlindungan Tenang products

It is proposed that the 100 % stamp duty exemption on insurance policies or takaful certificates for all Perlindungan Tenang products shall be extended for another three years. This applies to Perlindungan Tenang insurance policies or takaful certificates issued from 1 January 2026 to 31 December 2028.
​     

Review of stamp duty on property ownership by non-citizens

It is proposed that the stamp duty rate on instruments of transfer of residential homes executed by non-citizen individuals (except Malaysian permanent residents) and foreign companies to be increased from
4 % to 8 %. This applies to instruments of transfer of residential homes executed from 1 January 2026.
       

Exemption of stamp duty on contract notes for buy-side transaction of structured warrants

It is proposed that stamp duty exemption be given on the contract notes for buy-side structured warrant transaction, which are executed from 1 January 2026 to 31 December 2028.
       

Extension of stamp duty exemption on contract notes for Exchange Traded Funds (“ETFs”) listed on Bursa Malaysia

It is proposed that the stamp duty exemption on contract notes for ETFs transactions to be extended for another three years, covering transactions executed from 1 January 2026 to 31 ​December 2028.
      

Carbon Tax

Implementation of carbon tax

​As initially proposed in Budget 2025, the carbon tax is reaffirmed for implementation in 2026, with an initial focus on the iron and steel, as well as the energy sectors in Malaysia. To ensure consistency in implementation, the carbon tax mechanism will be aligned with the National Carbon Market Policy and the forthcoming National Climate Change Bill.

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