Budget 2026 Highlights – Updates on Tax and Duties

The Budget 2026, announced on 10 October 2025, highlights significant reforms in Malaysia’s tax administration aimed at enhancing compliance and efficiency. Key measures include the nationwide implementation of the e-invoicing initiative in 2026 and the introduction of a stamp duty self-assessment system to promote greater taxpayer compliance.

In addition, the government aims to expedite the refund process for overpaid taxes within the next year. The long-anticipated Carbon Tax is also set to be introduced in 2026, with an initial focus on the iron, steel, and energy sectors.

Beyond these new developments, the government continues to propose new incentives and exemptions, as well as extensions of existing ones, to support the nation’s economic growth.

This alert highlights the key updates from Budget 2026 for taxpayers to stay informed of the forthcoming changes to Malaysia’s tax laws and administrative policies.

Corporate Tax

There were several key announcements from a corporate tax perspective during the Budget 2026 and this includes, among others, accelerated capital allowance (ACA), green technology investment, and incentives for venture capital companies and companies in the tourism sector. It was proposed, amongst others, that:

• Capital Expenditure for ICT – companies can claim ACA on capital expenditure for plant, machinery and information and communication technology (ICT) equipment. The initial allowance of 20% and 40% annual allowance under ACA are intended for qualifying capital expenditure incurred from 11 October 2025 to 31 December 2026.  
• Tourism Industry – tax deduction of up to RM500,000 on capital expenditure for project operators registered with the Ministry of Tourism, Arts and Culture, undertaking tourism projects involving renovation and refurbishment of business premises. In relation to tourism and cultural sectors, tourism operators are proposed to be given a 100% income tax exemption on the value of increased income incremental from tour packages to Malaysia.
• Venture Capitalist – improvement of the existing venture capital tax incentives which may be granted for up to 10 years, a special corporate tax rate of 5% and dividend tax exemption for individual shareholders.
• Green Tech – 100% Green Investment Tax Allowance (GITA) for companies that use green technology products in their local supply chains, as certified by MyHIJAU Mark. The Green Technology Financing Scheme (GTFS) 5.0 offers a government guarantee incentive of up to 80% for green technology in the waste sector and up to 60% for other sectors such as energy, water, transportation and manufacturing.
• Food waste – Companies engaging in new food production activities are proposed to be given a 100% income tax exemption on statutory income, for a period of 10 years, meanwhile existing companies undertaking food expansion projects are given a 100% income tax exemption on statutory income, for 5 years.
• AI Tech – a tax incentive was proposed for training in Artificial Intelligence (AI) whereby a deduction of 50% to be given to Micro, Small and Medium Enterprises (MSME) on expenses incurred for AI training.
• Real Estate – For renovation and conversion of commercial buildings into residential units, it was proposed a special tax deduction of 10% to be granted. This deduction is capped at RM10 million.

Stamp Duty

Whilst in preparation of the self-assessment system for stamp duty, taxpayers should also keep in mind announcement made by Budget 2026 which includes the increase of stamp duty rate for transfer of residential property, change in threshold for the stamp duty exemption on employment contracts, and extensions to stamp duty exemptions. It was proposed, amongst others, that:

• The flat rate of stamp duty for instruments of transfer of residential property to non-citizen individuals (other than permanent residents) and foreign companies was proposed to increase to 8%, which will be applicable to instruments effecting the transfer of residential property executed from 1 January 2026 onwards.
• Exemption for employment contract below RM3,000 executed 1 January 2026 onwards.
• Exemption for instruments of transfer and loan agreements for the purchase of a first home valued up to RM500,000 will be extended until 31 December 2027.
• Exemption for insurance policies or takaful certificates for the products of “Perlindungan Tenang” will be extended until 31 December 2028.
• Exemption for insurance policies or small-value takaful certificates purchased by individuals and MSMEs is extended until 31 December 2028.

Indirect Tax

The Royal Malaysian Customs Department (RMCD) in focusing on strengthening tax compliance and aiming to reform its tax administration for sales and service tax (SST), import duty and excise duty has also made some key announcement, amongst others:

• The RMCD is focusing on enhancing its enforcement, and this includes the introduction of digital tax stamps with advanced security features to prevent counterfeiting and leakage during imports. This is supported by the Centralised Screening Complex (CSC) CCTV system to strengthen surveillance at key entry points.  
• As an initiative to strengthen the Agenda Nasional Malaysia Sihat, the increase of excise duty on cigarettes, cigars, cheroots, cigarillos and heated tobacco products starting 1 November 2025 where the increase will be in phases. Additionally, the excise duty on alcoholic beverages will also be increased by 10%, starting 1 November 2025. The exemptions on import duty and sales tax for Nicotine Replacement Therapy products will be extended until 31 December 2027, which includes products such as nicotine gum and patches, and will further expand to include nicotine mist and lozenges.
• Starting 1 January 2026, import duty, sales tax and excise duty will be imposed on vehicles imported into Langkawi or Labuan with values exceeding RM300,000. Meanwhile, full excise duty and sales tax exemptions will continue for eligible taxi and private hire vehicle owners for purchase of new Proton and Perodua vehicles.

Following the recent expansion of SST scopes earlier in June and July of this year, there was no significant changes to the SST regime announced during the Budget 2026.However, we may anticipate other initiatives by the RMCD moving forward to improve compliance and reform its administration whether through new policies or legislative amendments.

Individual Tax

Other than the updates on taxes and duties affecting the corporations and businesses, the Budget 2026 also proposed a plethora of individual tax reliefs and incentives, which include the following:

• The expansion in the scope of relief for life insurance / takaful announced in the Budget 2026 includes an income tax relief of RM3,000, expanded to cover payments of life insurance premiums / takaful contributions on policies contracted for the lives of one’s children.
• Income tax relief on expenses for vaccination by individual be expanded to cover all types of vaccines registered and approved by the Ministry of Health.
• In effort to encourage Malaysian to tour within the country in view of the “Tahun Melawat Malaysia 2026”, the government proposed a special income tax relief for individuals of up to RM1,000 for entrance fees to local tourist attractions and cultural programmes.
• Income tax relief of RM3,000 to be expanded to include daily care centres or after-school transit centres for children aged up to 12 years old.

This alert serves as a quick reference to the key highlights from Budget 2026, focusing primarily on tax and duty measures. The Budget 2026 speech contains further details, including matters not covered in this alert. In the event of any discrepancy, the Budget speech shall prevail. Please note that the proposals have not yet been gazetted and remain subject to legislative changes.