Budget 2027 Malaysia: What SMEs Should Expect on Tax
Published: 4 Sept 2026
Budget 2027 is scheduled for tabling in the Dewan Rakyat on 9 October 2026. For Malaysian SME owners still absorbing the expanded SST scope and the phased e-Invoice rollout, the question is straightforward: what is coming next, and what should we be doing about it now?
We put that to Zen Chow, Executive Director and Country Tax Leader at YYC. His headline view is that Malaysia has largely finished introducing new taxes for now. The pressure in Budget 2027 is more likely to come from three other directions: existing taxes widening in scope, selected rates edging up, and enforcement tightening as LHDN follows the trail that e-Invoicing has opened up.
Below is his read on where tax policy is heading, which incentives are worth watching, where audits are focused, and the one thing he believes every business owner should be doing before October.
What the Past Year Has Done to SME Tax Compliance
The starting point, in Zen Chow's view, is that the compliance burden has already risen sharply.
Following the SST expansion on 1 July 2025, a range of services that previously fell outside the service tax net became taxable. That left affected businesses with two options, neither comfortable. They could raise prices and pass the tax to customers, at the risk of losing them, or absorb it and accept thinner margins. The same dynamic hit the sales tax side, where previously exempt goods became taxable and manufacturers had to register, file, and learn a new set of obligations from scratch.
The tax itself is only part of the cost. Systems, training, and professional advice all carry a price tag, and those layer on top of existing operating costs.
e-Invoicing follows a similar pattern. It is not an additional tax, but compliance still costs money, whether a business invests in accounting software or commits staff time to LHDN's MyInvois portal. Training and processing time are real expenses.
Zen Chow is careful not to frame it as purely a burden. e-Invoicing pushes businesses toward proper digitalisation, with income and expenses recorded cleanly in a system. Whether a business is making or losing money becomes visible rather than assumed. Transparency has clearly improved.
Services like Renovation and Construction now subject to 6% SST, find out more here.
Carbon Tax, Dividend Tax, and Capital Gains Tax: Where the Movement Is
Recent budgets have produced two distinct patterns. Dividend tax and capital gains tax have been implemented, though at modest rates and limited scope. Carbon tax was announced, then deferred. Zen Chow's expectations for each differ.
Carbon tax is coming. He regards it as inevitable given the global direction on environmental policy and Malaysia's need to keep pace with international tax trends. He expects a phased introduction starting with sectors such as steel and energy. The details are not yet public, but he believes Budget 2027 will set out the standards businesses must meet and the tax consequences of falling short.
Dividend tax is unlikely to extend to corporate shareholders. The current mechanism applies to individual shareholders, and Zen Chow sees a logic to that. With the corporate rate at 24% and the top individual rate at 30%, the dividend tax narrows a six-percentage point gap. Applying it to corporate shareholders as well would amount to double taxation. He does not rule out the 2% rate rising eventually, since it does not fully close the gap, but he does not expect that adjustment as early as 2027.
Capital gains tax is the one to watch. At present it applies only to companies disposing of shares in unlisted companies, with individuals outside its scope. Zen Chow's reading is that the government started with companies because corporate records are complete and easily verified: when shares were acquired, when they were sold, and what gain arose. But individual share transfers are also recorded with the Companies Commission of Malaysia (SSM). On that basis, he thinks an extension to individuals is plausible. Today an individual disposing of shares pays nothing, provided the activity is not trading in nature and the shares are not in a real property company (RPC). He believes the government can see that gap.
Beyond these three, Zen Chow does not expect further new taxes in the near term. His view is that a great deal of new tax legislation has already been introduced in recent years, and the more likely direction is widening the scope of what already exists, capital gains tax extending to individuals being the clearest example.
On the corporate tax rate, he expects no increase. The global trend is downward rather than upward, and at 24% Malaysia already sits on the higher side relative to many competing jurisdictions. Raising it would further weaken the country's position in attracting foreign investment.
The Incentives Expiring at the End of 2026
Several reliefs lapse at the close of the 2026 year of assessment. Zen Chow identifies four he would like to see extended.
| Incentive | Current position | Zen Chow's view |
|---|---|---|
| Domestic tourism relief, RM1,000 for individuals | YA 2026 only, tied to Visit Malaysia Year | Extend, even on identical terms |
| Angel investor tax exemption | Previously extended in Budget 2024, ends YA 2026 | Extend, or angel funding for startups will thin out |
| Equity crowdfunding (ECF) investor exemption | Ends YA 2026 | Extend, as startups bear the impact |
| Accelerated Capital Allowance on ICT equipment and locally purchased machinery | Ends 31 December 2026 | Extend, supports digitalisation and local manufacturing |
On the tourism relief, which covers entry to domestic attractions and cultural and arts events, his argument is that the sector faced genuine headwinds during the year, with regional instability keeping people from travelling. Stimulating tourism should not be a single-year exercise.
The angel investor and ECF exemptions matter for the same underlying reason. Both channel private capital into early-stage companies, and if they lapse, the investors withdraw and startups feel the shortfall.
On the corporate side, he notes that most company incentives have already been absorbed into the New Incentive Framework (NIF), which replaced Pioneer Status and the Investment Tax Allowance, so extension is not a live question for those. The exception is the Accelerated Capital Allowance available on ICT equipment and software, and on heavy machinery and general plant and equipment bought from local manufacturers. That measure encourages both digitalisation and local sourcing, and he hopes to see it continue.
Where LHDN Audits Are Heading
Raising revenue does not require new taxes. Stronger enforcement achieves much of the same result, and Zen Chow sees two clear audit priorities.
Stamp duty. Stamp duty has been on the books for decades but was widely overlooked until LHDN began auditing it heavily in 2025. He expects that focus to continue as the authority works to bring compliance up to standard.
e-Invoice data. e-Invoicing is a transparency mechanism by design, and LHDN will use it to check whether reported income matches what the invoices show. The authority has already disclosed that several businesses were found to have under-reported. Commission earners and e-commerce sellers are priority targets. e-Invoicing also has its own Compliance Review Framework, which nominally examines whether invoices are issued correctly, but in practice follows the invoice trail to test whether income has been reported accurately, and whether the party's receiving payment have declared that income themselves.
On whether e-Invoicing could be reversed, Zen Chow sees two reasons it will not. It is not a new tax, so the usual political argument against tax increases does not apply. And it improves transparency while raising revenue without introducing new taxes, which he believes any government would support.
Asked about the Deputy Prime Minister's disclosure in early July that the Cabinet had agreed to review the e-Invoice rollout on the grounds of pressure on businesses, Zen Chow's expectation is that the review targets compliance rather than the mechanism. His prediction is simplification: easing the rules so they are less onerous to follow, while preserving transparency. He does not read it as a withdrawal.
Want to understand more about Stamp Duty in Malaysia, read our guide for more details.
What Zen Chow Would Ask for on Behalf of SMEs
Given a single request, Zen Chow would ask the government to look at how other countries treat a company's first tranche of income.
His proposal is a partial exemption for new companies on their initial chargeable income, for the first three years. Not necessarily a full exemption, half would help, with a smaller allowance retained after year three. Tax is a substantial cost of doing business for an SME, and a buffer of that kind lightens the load on expansion, encourages more people to start businesses, and feeds through to national GDP. His broader point is that the Malaysian economy rests heavily on its SMEs.
The model he points to is Singapore's. There, a qualifying new company receives a 75% exemption on its first SGD 100,000 of chargeable income for the first three years of assessment, and 50% on the next SGD 100,000. Beyond that period a partial exemption continues, at 75% on the first SGD 10,000 and 50% on the next SGD 190,000. On the first SGD 200,000 of income, more than half escapes tax, which Zen Chow describes as meaningful help for a smaller business.
What Business Owners Should Do Before October
Whatever Budget 2027 contains, Zen Chow's advice for the months ahead is not about tax planning at all. It is about liquidity.
His reasoning starts with the environment. Between US tariff increases, trade tensions, the war in Ukraine, and conflict involving the US and Iran, uncertainty is unusually high. In that setting, the priority is to hold more cash.
The tax argument reinforces it. Most tax incentives require spending before the benefit arrives. Capital allowances require buying the equipment. Exemptions require making the investment. A business with healthy cash flow can act when an opportunity appears. A business short on cash watches the incentive lapse.
His closing point is that protecting cash flow is what carries a business through an uncertain period, and that conditions do eventually improve for those who hold on.
What to Watch on 9 October
Budget 2027 will be tabled on 9 October 2026. On the tax side, the questions worth tracking are whether carbon tax receives an implementation framework, whether capital gains tax is extended to individual shareholders, whether the reliefs expiring at the end of 2026 are renewed, and what emerges from the e-Invoice review.
Read more about Malaysia’s overall tax framework and related updates on YYC’s Tax Blog.
Talk to YYC
If you want to understand how the measures in Budget 2027 will affect your business, or you would like a review of your current tax position before the year closes, our tax advisory team can help. Contact YYC to arrange a discussion.
Based on an interview with Zen Chow, YYC Executive Director & Country Tax Leader, YYC. Published 30th July 2026. YYC is a Malaysian accounting, tax, and advisory group established in 1974, serving over 20,000 clients across Malaysia, Singapore and Hong Kong.
