#Belanjawan2025: Key takeaways for HR & business leaders from Malaysia Budget 2025

Increase in minimum wage, rationalisation of petrol subsidies, and broadening the scope of the service tax, are some of the big announcements made by PM Anwar. Report by Arina Sofiah and Aditi Sharma Kalra.

Malaysia’s Prime Minister Datuk Seri Anwar Ibrahim has delivered the 2025 Budget in Parliament on 18 October 2024.

Among the major updates, included:

• Progressive expansion in Sales Tax and Service Tax (SST),
• Rationalisation of subsidies in public utilities such as fuel, water, electricity, and education,
• Developmental measures for Sabah and Sarawak,
• Increased focus on public-private partnership (PPP) projects,
• Enhanced accountability and updates to legacy regulations,
• Public accountability initiatives, with a focus on efficiency and accessibility of services,
• Combatting fraud and cybersecurity threats,
• Support for high-value activities through tax incentives,
• And more. Scroll below for updates on the major announcements.

Setting the tone by citing philosophical luminaries, such as this quote by Cicero, “Prosperity demands of us more prudence and moderation than adversity”, the PM, also the Finance Minister, went on to share an update on the current state of the economy.

This included macroeconomic data such as:

• Economic growth in Q1 2024 has been 4.2%, while Q2 has been 5.9% - thus an overall GDP growth of 4.8 to 5.3% is expected this year.
• The unemployment rate as of August 2024 dropped to 3.2%, the lowest rate since January 2020.
• Inflation has moderated to 1.9% in August, down marginally from the 2% growth in May-July.
• The highest approved investment ever recorded in Malaysia was achieved in 2023, at RM329.5bn.

With the stage set, he went on to outline the pillars of the third MADANI Budget:

1. Supporting the local economy
2. More decisive measurement and reporting
3. Eliminating red tape
4. Increasing salaries and income
5. Tackling the cost of living

The resultant Budget 2025, valued at RM421bn, is the highest ever amount allocated, with RM335bn put aside for operating expenditure, and RM86bn set aside for developmental expenditure (excluding RM2bn in contingency savings).

Below we have summarised some of the most relevant updates for business & HR leaders.

Announcement 1: Expansion of tax schemes

Despite the progress cited, challenges remain – eg, the National Tax Collection Rate in 2023 was still among the lowest at 12.6% to GDP compared to neighbouring countries such as Thailand (16.1%),) the Philippines (14.1%) and Singapore (13.7%).

Thus, PM Anwar said the Sales Tax and Service Tax (SST) will be improved to be more progressive. The collections from the SST scope expansion, he said, will be used to improve cash assistance for the people.

Additionally, the scope of Sales Tax (Cukai Jualan/CJ) will be amended such that:

a) Basic food items are not subject to CJ
b) CJ will be charged on non-essential goods such as imported premium goods

The scope of Service Tax (Cukai Perkhidmatan/CP) is also expanded to include commercial services including businesses such as fee-based services.

On the individual taxation front, he announced updates on income tax on dividends:

• 2% tax on dividend income exceeding RM100,000 that is received by individual shareholders will be applicable from assessment year 2025.
• Dividend income tax from investments such as EPF, share trusts under PNB, and dividend income from abroad are exempt.

Announcement 2: Rationalisation of subsidies in public utilities such as fuel, water, electricity, and education

With calls from economists, the government has agreed to implement the subsidy rationalisation programme of RON95 petrol by mid-2025, whereby the top 15% of earners will no longer enjoy such subsidies. This, he said, will be done without affecting 85% of the people who will continue to enjoy the subsidised price.

Similarly, he shared about the rationalisation programme for electricity subsidies, stressing that 85% of people who use electricity not exceeding 600kWJ will continue to enjoy subsidies.

Meanwhile, water tariffs will be adjusted in alignment with the needs of all states.

Further, he introduced a policy to reduce education subsidies in stages for the top 15% income group, whereby the savings will be used to improve SBP (Sekolah Berasrama Penuh/Fully Residential School) and IPTA (Malaysian Institutes of Higher Learning) infrastructure.

A total of RM60mn has been allocated to Ministry of Domestic Trade and Cost of Living (KPDN) and Jabatan Kastam Diraja Malaysia (JKDM/Royal Malaysian Customs Department) for this purpose.

Announcement 3: Developmental measures for Sabah and Sarawak

RM120bn worth of public investment has been set aside for development purposes by 2025, including through Public-Private Partnership (PFI) and Government-Linked Investment Companies (GLIC) projects.

RM6.7bn will be channelled solely towards development in Sabah, while RM5.9bn will be dedicated towards development in Sarawak.

Further, the Special Grant for Sarawak and Sabah will be increased to RM600mn.

Funds have also been put aside for Sabah Sarawak Link-Road (SSLR) Phase 2, Tawau Airport, Sabah and Miri Airport, Sarawak Expansion Project, and development of the Sarawak Cancer Centre through collaboration between the Federal Government and Sarawak Government.

Announcement 4: Increased focus on public-private partnership (PPP) projects

The boost in investment to the Public-Private Partnership Master Plan (PIKAS) 2030 is expected to increase private investment by RM78bn and generate 900,000 job opportunities by 2030.

Some of the critical PPP projects include:

• Sultanah Aminah 2 Hospital in Johor
• Juru and Sungai Dua Elevated Expressway, Penang
• WISE Expressway from Gopeng to Kuala Kangsar
• Five-Season Two-Year Rice Crop Project in the MADA areas of Kedah and Perlis
• WCE Expressway for the link between Banting to Gelang Patah

Announcement 5: Enhanced accountability and updates to legacy regulations

With an allocation of RM360mn, Malaysian Anti-Corruption Commission (MACC) will be given full freedom to investigate and take firm action, as part of the pillar on accountability, announced by PM Anwar.

Further, RM200mn will be assigned to the National Audit Department in line with the amendment to the Audit Act, which empowers the Auditor General to review and audit the management of public funds through the "Follow The Public Money Audit" approach.

The role of the Public Accounts Committee and the Special Select Committees of the Senate and the House of Representatives will be strengthened in a bid to create more checks and balances.

Efforts of the All Parliamentary Party Group Malaysia Sustainable Development Goals (APPGM-SDG), which cuts across parliamentary constituencies and political parties, will get a RM20mn boost.

Further, a Legal Reform Team will be formed in order to lead efforts to update more than 3,000 outdated laws, especially commercial laws such as the Contracts Act 1950, so that they keep pace with the times.

Finally, the Consumer Credit Bill will be tabled in Parliament, as well as a Consumer Credit Monitoring Board will be established to regulate non-bank credit providers and credit service providers.

Announcement 6: Public accountability initiatives, with a focus on efficiency and accessibility of services

The Government Efficiency Commitment Act is expected to be tabled, with a view to:

• Reducing bureaucracy;
• Speeding up processes; and
• Improving the efficiency of service delivery.

Centralised channels will be set up at Urban Transformation Centres (UTC) to help citizens who have difficulty applying for assistance across various agencies.

• Improvement of counter services will include:
• Additional 1 hour of RTD operating hours,
• Development of a new UTC in Seberang Perai,
• Expansion of the use of the Queuing System (QMS) at all UTCs,
• MADANI Touch Kiosk initiative will be implemented by gathering various Government service kiosks in crowded areas,
• iPayment payments at Government counters.

Among the RM100mn allocated for expansion of mobile services for rural and remote communities, nine mobile dental clinics, and mammogram screening facilities will be set up. Further, RM100mn will be allocated involving public universities and TVET institutions to implement community services in Kampung MADANI.

Announcement 7: Combatting fraud and cybersecurity threats

RM20mn will be injected into strengthening the role of the National Fraud Response Centre (NSRC), as well as the National Fraud Portal to combat online fraud by facilitating automatic detection of suspicious transactions.

A total of 100 positions will be added at the National Cyber Security Agency (NACSA) in line with the commitment to strengthen national cybersecurity.

Announcement 8: Support for high-value activities through tax incentives

The New Investment Incentive Framework has been introduced in the third quarter of 2025 to focus on high-value activities rather than existing incentives based on specific products.

To increase the level of economic diversification of the electrical and electronics products (E&E) industry, tax incentives for increased exports have been extended to integrated circuit (IC) design activities, denoting these are high value-added activities.

To provide high-income jobs in the AI field, special tax deductions will be given to IPT that develop new courses such as digital technology, AI, robotics, IoT, data science, FinTech and sustainable technology.

Special income tax rates will be offered for investments in 21 economic sectors to reduce economic disparities between regions, subject to the outcomes produced. Tax incentives will also be provided for Carbon Capture, Utilisation and Storage (CCUS) activities to ensure ESG-based investments.

Announcement 9: Specialised focus on talent and specific economic sectors

Economic groupings are underway according to state specialties such as renewable energy in Perlis and Sabah, specialised chemical industries in Pahang and Terengganu, etc.

A RM1bn strategic investment fund is being established in an effort to increase local talent capacity and encourage high-value activities to be implemented in the country.

Further, total investments by Government-Linked Investment Companies (GLIC) next year through the GEAR-uP initiative are being valued at RM120bn for a period of five years, to increase direct investments in the country.

Valued at RM500mn, an allocation for KWAP will involve eight key sectors such as data centers and energy transition to strengthen the local private market. Additionally, RM1bn is expected to be provided by Khazanah to support the local semiconductor industry.

Announcement 10: Establishing Malaysia as a talent hub and an infrastructure gateway

PM Anwar has set aside funds to establish the National Fund-of-Funds (NFOF) by Khazanah for the benefit of venture capital fund managers investing in start-ups. Resources will also be set aside to finance the Pioneer Fund Programme under KWAP to support local start-up activities.

With his vision to position Malaysia as a regional public infrastructure gateway, PM Anwar cited investments totalling USD16.9bn from global technology giants AWS, Microsoft, Google and Oracle until 2038.

Announcement 11: Financial assistance and compensation updates for civil servants

The Public Service Remuneration System (SSPA) will be effective in phases from 1 December 2024, and will establish a minimum income amounting to RM2,115 per month.

A Special Financial Assistance grant of RM500 to all civil servants grade 56 and below, including contract appointments, as well as for all Government retirees, pensioned veterans and non-pensioned veterans amounting to RM250, will be istributed in February 2025.

Further, the Public Sector Housing Financing Board (LPPSA) will introduce a new Youth Financing scheme for the benefit of young civil servants who wish to apply for housing financing up to the age of 40.

To support upskilling, the government will bear 50% of the cost of education or a maximum of RM15,000 for civil servants who have served for more than 15 years to pursue higher studies.

And for those in the healthcare sector, the Ministry of Health will implement a new work system in hospitals and health clinics on a targeted basis, and the facilities involved will be given an increase in On-Call Duty Allowance (between RM55 and RM65 depending on the field and department).

Announcement 12: Tax relief for elderly, caregivers, and childcare

To preserve the welfare and guarantee the care of the elderly, the following measures will be implemented, including tax deductions for employers who support caregiving employees. The measure are:

• Tax relief on the expenses of a full medical examination of parents has been extended to cover the cost of vaccinations.
• Exemption of tax on equipment and sports activity expenses has been extended to parents.
• Tax relief on medical treatment expenses to also include grandparents.
• The tax exemption on childcare allowance is extended to cover the care of the elderly i.e. mothers, fathers, grandparents.
• Additional tax deductions for employers who pay childcare allowances are also extended to cover the care of the elderly i.e. mothers, fathers, grandparents.

Additional tax relief has also been granted for the following groups of society:

• Disabled taxpayers’ relief increased to RM7,000,
• Disabled husband/wife’s relief increased to RM6,000,
• Taxpayers with disabled children who are not married see an increase in relief to RM8,000.

Announcement 13: Tax relief for employers who support flexible working arrangements and untapped talent pools

The Second Chance Policy, a government initiative designed to protect the welfare of individuals burdened by small-scale debts, has been extended to companies that have gone bankrupt.

Meanwhile, the following support is provided to incentivise employers specifically:

• For employers who implement flexible working arrangements, an additional 50% tax deduction will be given on the cost of capacity building and software procurement.
• An additional tax deduction of 50% for the period of 12 months of employment is given to employers who employ women back to work.
• An additional 50% tax deduction is given to employers who provide up to 12 months of additional paid care leave facilities to employees who care for sick or disabled children or family members

Further, SOCSO will build a Rehabilitation Center on the East Coast at a cost of almost RM600mn million which will offer comprehensive services including rehabilitation treatment until the affected employee returns to work.

Announcement 14: Training opportunities for talent and the wider community

Approximately RM200mn will be provided by Khazanah through the Khazanah Youth Development Programme (K-Youth) to supply 11,000 local talents to key sectors such as semiconductors.

HRD Corp will utilise a 3bn ringgit fund to offer 3mn training opportunities. It will also reallocate a special fund of 15% of the total levy collection to implement the MADANI Training Programme specifically for vulnerable groups.

PROTON, through the PROTON Advanced Automotive Technology Institute in Melaka, will contribute curriculum, teaching staff assistance and training requirements. An RM 50mn Matching Grant will be provided to enable more industries to follow this programme.

With the goal of increasing industry cooperation, training opportunities for vulnerable youth, the urban poor, marginalised, rural and Orang Asli groups, will be enhanced.

TVET services for the benefit of the community will be strengthened, eg, under KPT and MOSTI, attention will be paid to nourish research, development, commercial and creative activities.

AI-related education will be extended to all research universities, and RM50mn has been set aside for this purpose.
Individual tax relief on net savings in the National Education Savings Scheme (SSPN) has also been extended for another three years.

Allocation for 17 types of education assistance will continue to be provided in 2025 for which RM5.3bn has been earmarked.

Announcement 15: Changes to EPF contributions and social security schemes

The government agreed to mandate all non-citizen workers to contribute to the EPF with a contribution rate based on employment contract status (new or current).

The EPF is reviewing its scheme to strengthen the inter-generational transfer approach whereby part of the members' EPF savings can be transferred directly into the EPF accounts of immediate family members.

Also, the government plans to extend individual income tax relief on contributions in Private Retirement Schemes and deferred annuity premium payments until assessment year 2030.

An allocation of RM100mn has been made to continue to bear 70% of the contribution of gig workers under the Self-Employed Social Security Scheme, in preparation for the setting of mandatory contribution conditions to renew the vocational license of self-employed individuals from 2025.

Meanwhile, the i-Suri programme will continue on a matching basis through contributions from the Government and active contributions from contributors.

Announcement 16: Increase in minimum wage to RM 1,700 as well as income increases for specific worker groups

An amount of RM200mn has been put aside for the Progressive Wage Policy which is expected to benefit. In an effort to reform the labour market with the aim of increasing workers' income, this policy will be fully enforced in 2025.

In Budget 2025, PM Anwar has increased the minimum wage rate from RM1,500 per month to RM1,700 per month, effective 1 February 2025. The enforcement of the new minimum wage of RM1,700 for employers with less than five employees is effective from 1 August 2025.

In efforts to raise income levels of other members of society, RM250mn has been provided to increase the participation of more B40 citizens in the People's Income Initiative (IPR) programme.

The Government's matching incentive rate for the i-Saraan programme has been increased from 15% to 20% of the individual's total annual contribution, subject to a maximum limit of RM500 annual matching incentive or RM5,000 for life.

Announcement 17: Individual income tax updates

The individual income tax exemption on Foreign Source Income (FSI) has been extended until 31 December 2036.

Individual income tax exemption will be implemented for medical expenses up to RM10,000 under medical and health insurance and takaful products with co-payment features.

Individual income tax exemption on education insurance and medical insurance premium payments will be increased to RM4,000.

Individual income tax relief of up to RM7,000 will be provided on housing loan interest for agreements completed between 1 January 2025 and 31 December 2027.

Lead image / Prime Minister Anwar Ibrahim Facebook