We discussed the benefits and costs of various tax changes, subsidy adjustments and incentives tabled during Malaysia’s Budget 2025.
Part 2 covers a broad spectrum of tax reliefs encompassing lifestyle, employment, education, retirement and the environment.
READ FIRST: Budget 2025 Commentary Part 1
Budget 2025 Tax Reliefs for Lifestyle
RM2500 tax relief for EV facilities now includes food waste composting machine purchase
The annual tax relief of RM2,500, which currently applies to the purchase, installation, rental, and subscription fees for electric vehicle (EV) charging facilities, is set to be broadened. This expansion will now encompass the purchase of food waste composting machines intended for household use. This initiative reflects a growing recognition of the importance of sustainability and waste management in domestic settings. Taxpayers will be able to claim this relief once within three Years of Assessment (YAs), thereby incentivizing the adoption of eco-friendly practices among households. This move not only encourages the use of electric vehicles but also promotes responsible waste disposal and composting, ultimately contributing to a more sustainable and environmentally conscious society.
Sports equipment and activities for immediate family AND parents
The scope of the annual tax relief of RM1,000 for sports equipment and activities for taxpayer, spouse and child will be expanded to include the taxpayers’ parents.
Medical treatment provisions set to broaden
The government is set to review and enhance the annual tax relief provisions for taxpayers to better support their families’ healthcare needs. Currently, taxpayers can claim up to RM8,000 for medical treatment, special needs, and care expenses incurred for their parents.
The scope of this relief is under review, potentially leading to increased benefits for those caring for aging family members. In addition, the existing RM1,000 relief for full medical checkups for parents will be broadened to encompass costs related to vaccinations, thereby encouraging preventive healthcare measures.
Notably, the proposed changes also include extending the tax relief to cover expenses incurred for grandparents, recognizing the importance of caring for older generations and providing families with more financial flexibility in managing their healthcare expenditures. These adjustments reflect a growing commitment to improving the well-being of families and ensuring that taxpayers can effectively support their loved ones.
PRS tax relief extended to 2030
The annual tax relief of up to RM3,000 for contributions to Private Retirement Schemes PRS) and deferred annuities will be extended to YA 2030.
SSPN tax relief extended to 2027
The annual tax relief of RM8,000 for net deposits to the Skim Simpanan Pendidikan Nasional (SSPN) is set to undergo a review. This tax relief will be extended until the year of assessment (YA) 2027. Additionally, the calculation of net deposits will be revised to exclude any withdrawals made to cover education costs for further studies.
Relief for childcare or kindergarten fees extended to 2027
The annual tax relief of RM3,000 for fees paid to childcare centres or kindergartens for children up to the age of six, will be extended to YA 2027.
Budget 2025 Encourages Flexibility, Inclusivity, Savings
Foreign source income (FSI) exempted until 2036
The income tax exemption for foreign-source income, which has already been taxed in its country of origin and is received by a resident individual in Malaysia, is currently effective until December 31, 2026. This exemption will be extended, allowing it to remain in effect until December 31, 2036.
Employees Provident Fund (EPF) match by Government increased to 20%
The government has announced an increase in its matching contribution to the Employees Provident Fund (EPF) i-Saraan program, raising it from 15% to 20% of the individual’s contribution. This adjustment is designed to enhance savings for participants, with the government’s contribution capped at RM500 per year and a lifetime maximum of RM5,000.
This initiative aims to encourage more individuals to save for their retirement by providing a more substantial government incentive. In addition to this, the government will also implement mandatory EPF contributions for non-Malaysian employees, a process that will be rolled out in phases. This requirement reflects a broader strategy to ensure that all workers in the country, regardless of their nationality, are adequately prepared for their financial future, thus reinforcing the importance of retirement savings across the workforce.
50% tax deduction for hiring women returning to work, up to RM500,000 claim for implementing FWA
The statement outlines a new tax incentive program designed to support specific employer initiatives aimed at promoting inclusivity and flexibility in the workplace. Employers will receive an additional 50% tax deduction on the remuneration paid to women returning to work after a break, applicable for a period of 12 months. This initiative encourages companies to hire and support women, particularly those who may have taken time off for caregiving or personal reasons, thereby helping to reduce the gender gap in employment.
Additionally, employers can claim a tax deduction for costs related to capacity-building and software procurement needed to implement flexible working arrangements, capped at RM500,000, with expenses requiring verification by Talent Corporation Malaysia Berhad (TalentCorp). This measure incentivizes businesses to invest in technology and training that enable flexible work environments, enhancing productivity and employee satisfaction.
Furthermore, there is a provision for tax deductions on employer-paid leave for up to 12 months for employees caring for sick or disabled children or family members, recognizing the challenges faced by caregivers and supporting employers who provide essential leave.
To take advantage of these incentives, employers must submit their applications to TalentCorp between January 1, 2025, and December 31, 2027. Overall, these initiatives form part of a broader strategy to enhance workforce participation, particularly among women and caregivers, while encouraging businesses to adopt more flexible and supportive work environments.
40% ACA on ICT equipment’s and computer software
The announcement regarding the increase in the annual allowance for the purchase of information, communication, and technology (ICT) equipment, as well as the development of customized computer software for e-invoicing purposes, signifies a notable shift in fiscal policy aimed at promoting technological investment. Specifically, the allowance will rise from 20% to 40% for the years of assessment (YA) 2024 and YA 2025, allowing businesses to deduct a larger percentage of their expenses on these essential tools from their taxable income.
This initiative highlights the critical role that technology plays in modern business operations, particularly in the context of e-invoicing, which enhances efficiency by streamlining invoicing processes and improving compliance with tax regulations. By increasing the allowance, the government or relevant authority is not only encouraging businesses to invest in ICT and software solutions but is also providing substantial tax relief that can make such investments more financially viable. This is likely to result in a greater adoption of e-invoicing systems, leading to reduced errors and improved cash flow for businesses.
On a broader scale, this policy could stimulate growth within the technology sector by increasing demand for ICT products and services, ultimately fostering job creation and innovation. Overall, this strategic move aims to facilitate digital transformation in business practices, underscoring the importance of efficient financial management in today’s economy.
RM600 incentive to Employ Persons with Disabilities and Ex-convicts
The proposal to provide an incentive of RM600 per month for three months, supervised by SOCSO, aims to encourage employers to hire Persons with Disabilities (PWD) and ex-convicts, but presents a variety of potential benefits and challenges.
On the positive side, this financial incentive can motivate employers to break down barriers to employment that these individuals often face, leading to increased workforce diversity and a more dynamic work environment. By fostering a culture of inclusivity, companies can enhance their reputation as socially responsible entities, attracting customers who value such principles.
Additionally, the economic support provided to PWD and ex-convicts facilitates financial independence and reduces reliance on social welfare programs, while stable employment for ex-convicts may contribute to lower recidivism rates and improved community safety. Moreover, having SOCSO supervise the initiative can help ensure compliance with labor regulations, promoting fair work environments.
However, there are significant challenges associated with this program. The incentive is limited to only three months, which may not provide sufficient time for employers to fully appreciate the long-term benefits of hiring PWD or ex-convicts, potentially leading to short-lived employment opportunities. Employers might hire these individuals merely for the financial benefit, lacking genuine commitment to inclusivity. Stigma surrounding PWD and ex-convicts may still persist, discouraging participation despite the incentives.
Additionally, the administrative burden of managing the incentive program could deter employers, and concerns about productivity and reliability may cause hesitation. Ultimately, while the initiative has the potential to create meaningful employment opportunities, it is crucial to address these challenges through education, training, and ongoing support to ensure that the program leads to sustainable and inclusive employment practices.
Carbon Tax to Fund Renewable Energy
Carbon tax to commence in 2026
The implementation of a carbon tax on the iron and steel industry, as well as the energy sector, set to commence in 2026, is poised to have far-reaching implications for environmental policy and industrial practices.
By establishing a financial cost associated with carbon emissions, this policy seeks to incentivize companies to adopt low-carbon technologies, thus encouraging innovation and investment in cleaner alternatives. In the iron and steel industry, which is one of the largest industrial sources of CO2 emissions, the carbon tax will prompt manufacturers to explore advanced production methods, such as electric arc furnaces and hydrogen-based steelmaking processes. This shift not only aims to reduce emissions but also fosters a competitive edge in a rapidly evolving market increasingly focused on sustainability.
Similarly, in the energy sector, the tax will pressure traditional fossil fuel producers to transition toward renewable energy sources like solar, wind, and hydroelectric power, ultimately driving a significant reduction in overall emissions.
Furthermore, the revenue generated from the carbon tax could be strategically reinvested in renewable energy projects and technologies, creating new job opportunities and supporting communities that may be adversely affected by the transition away from fossil fuels.
However, this transition may not be without challenges. Industries heavily reliant on fossil fuels could face increased operational costs, raising concerns about economic competitiveness and potential job losses. Additionally, policymakers must consider the equity implications of the carbon tax, ensuring that it does not disproportionately burden lower-income households or vulnerable populations.
To mitigate these concerns, the government could implement measures to cushion the impact on consumers, such as providing rebates or subsidies for energy-efficient technologies. Ultimately, the success of this carbon tax will hinge on its ability to balance environmental objectives with economic realities, creating a pathway toward a sustainable future while maintaining social equity. By leveraging market mechanisms to reduce greenhouse gas emissions, the carbon tax represents a crucial step in the broader effort to combat climate change and transition to a low-carbon economy.
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