KUALA LUMPUR, 28 September 2025 — Economists are broadly aligning on the view that Malaysia’s upcoming Budget 2026 will eschew sweeping tax reforms, opting instead for measured adjustments aimed at preserving investor and consumer confidence in the face of external headwinds. The most likely tax shift, they suggest, will lie in expanding the capital gains tax (CGT) framework rather than altering core individual or corporate tax rates.
Despite pressures on government revenues, market watchers warn that bold tax hikes could erode consumption and dent growth at a sensitive juncture. Instead, the government is expected to lean on enforcement, compliance measures, and the broadening of the tax base.
What Economists Are Projecting
No Major Rate Overhaul
Analysts such as Imran Yassin Yusof, Director at MBSB Investment Bank, believe that Budget 2026 will not introduce significant changes to individual or corporate tax rates. He cautions that more aggressive tax moves could undermine spending momentum at a time when tariff pressure from the United States is already weighing on external demand.
Expansion of CGT Scope
Instead of rate cuts or increases, most expect the government to consider incremental expansions to the CGT regime. Currently, Malaysia’s CGT covers gains from disposals of unlisted shares and certain foreign capital assets. Economists suggest the framework may be broadened to include gains from disposal of listed shares on Bursa Malaysia, though they note such a proposal would require careful impact study and carries a modest probability of inclusion.
Strengthening Tax Administration & Compliance
Rather than new tax instruments, the budget is expected to emphasize enforcement and digitalisation. Proposals include wider adoption of e-invoicing, compulsory tax identification numbers (TINs), improved audit capabilities, and tighter dividend and CGT enforcement. Many believe these measures can boost revenue without overtly burdening taxpayers.
Caution on Carbon Tax and SST Expansion
While carbon or environmental levies remain recurring topics in policy discourse, economists express reservations about launching them broadly in 2026 due to competitiveness concerns and gaps in regulatory readiness. As for the Sales & Services Tax (SST), further extension of coverage is seen as unlikely given its potential inflationary impact.
Strategic Implications & Investor Lens
Revenue Growth Without Shock
By relying on compliance upgrades and base-broadening rather than tax hikes, the government aims to reconcile two competing needs: improving revenue inflows and preserving private sector momentum.
CGT Expansion as a Risk & Opportunity
If the CGT scope is widened to cover listed shares, it introduces new tax burdens for capital markets participants. But it also signals maturity in Malaysia’s tax architecture—shifting from narrow instruments to more equitable coverage. Investors will look closely at carve-outs, rates, and grandfathering measures.
Investor Confidence Matters
In an environment where international trade policies, tariff pressures, and supply chain shifts already loom large, stability in the tax regime is arguably as important as any new initiative. A budget perceived as cautious may help sustain capital inflows and mitigate investor caution.
Fiscal Tightrope
Economists repeatedly describe the government as “walking a tightrope”: needing revenue to fund social, infrastructure, and stabilization measures, while avoiding overtaxing firms and households already facing cost pressures.
As the budget is to be tabled on 10 October 2025, all eyes will be on how much nuance the government weaves into its tax architecture.
