Budget 2026: Strengthening Fiscal Resilience and Driving Inclusive Growth. Malaysia’s Budget 2026 marks a defining milestone under the 13th Malaysia Plan, reflecting the government’s firm commitment to restoring fiscal resilience while promoting inclusive, innovation-driven growth. Announced amid rising living costs, the budget focuses on balancing fiscal discipline with social equity through measures such as targeted subsidies, e-invoicing implementation, SME innovation incentives, and governance reforms. According to members of the Institute of Chartered Accountants in England and Wales (ICAEW) — David Lai and Tan Chin Teck of BDO Malaysia; Kevin Foo and Elliot Chaw of KPMG in Malaysia; and Chong Yen Ting of Scatec Solar — these reforms are designed to strengthen competitiveness, productivity, and sustainable prosperity across sectors.
A key pillar of Budget 2026 is the subsidy reform and social protection agenda. The introduction of BUDI95 for RON95 petrol and the SKDS 2.0 diesel scheme marks a transition toward more targeted assistance, complemented by the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) programmes totalling RM15 billion. This approach aims to ensure that aid reaches nine million eligible households while generating fiscal savings of up to RM4 billion from rationalised subsidies. David Lai, Head of Tax Advisory at BDO Malaysia, described subsidy rationalisation as a necessary but delicate measure, urging improved delivery mechanisms beyond PADU — Malaysia’s Central Database Hub — to avoid exclusion of deserving beneficiaries. Complementary reforms, such as MyKad-linked quotas and data-driven targeting, were also suggested to enhance fairness and fiscal efficiency.
On tax measures and competitiveness, Budget 2026 broadens the Service Tax to additional sectors, raises selected rates from eight to ten percent, and accelerates the nationwide rollout of e-Invoicing. The government will also introduce a Global Minimum Tax (GMT) for large multinationals and refine capital gains tax reporting for unlisted shares. While these initiatives aim to strengthen transparency and widen the tax base, Lai cautioned that Malaysia’s low tax-to-GDP ratio (12.5%) and additional levies might affect regional competitiveness. He proposed simplifying dividend taxation and granting exemptions to attract high-net-worth investors. Tan Chin Teck of BDO Malaysia added that the government should expand B2B exemptions under the Service Tax to prevent cascading costs along supply chains, thereby maintaining business efficiency.
The budget also places strong emphasis on SME empowerment and innovation. Under the New Industrial Master Plan (NIMP 2030), National Semiconductor Strategy, and AI Sandbox initiative, targeted grants and financing support will be channelled through BSN, SME Bank, and Bank Negara Malaysia. These measures aim to boost R&D, automation, and digital transformation among local enterprises. KPMG’s Foo and Chaw highlighted the need for “smart tax administration” — leveraging AI, e-Invoicing, and MBRS reporting to simplify compliance and enhance the taxpayer experience. They emphasised that faster approvals for AI, chip-design, and tech start-ups would attract high-value investments and accelerate Malaysia’s digital economy. Tan further noted that Malaysia must introduce innovation-specific tax incentives to help SMEs scale regionally, while Lai called for greater integration between national projects like the Johor-Singapore SEZ and local supply chains to generate wider economic benefits.
In line with Malaysia’s green economy agenda, Budget 2026 advances the National Energy Transition Roadmap (NETR) with a projected RM60 billion investment pipeline. It also introduces a phased carbon tax targeting heavy emitters, supported by green tax rebates, R&D grants, and capital allowances for renewable energy and electric vehicle infrastructure. Chong Yen Ting of Scatec Solar welcomed these initiatives but stressed the need for transparent green pricing and effective land-use planning for solar and hydro projects. Foo and Chaw recommended a clear carbon tax roadmap, sectoral compliance guidance, and enhanced incentives to boost EV adoption and sustainability investments.
To ensure long-term stability, the government aims to narrow the fiscal deficit to 3.5% of GDP by 2026, supported by improved enforcement, rationalised subsidies, and expanded tax measures. Experts agreed that broadening the tax base fairly is essential to reducing dependence on volatile revenue sources. Lai urged reforms in tax reliefs and deductions to bring more individuals into the tax system, while Tan advocated drawing lessons from Singapore’s GST Voucher Scheme to mitigate the regressive effects of indirect taxes. Transparency on how new revenues are reinvested into public services like healthcare and education will be critical in maintaining public trust.
Overall, ICAEW members concurred that Budget 2026 strikes a balanced approach between fiscal consolidation and inclusive, innovation-led growth. Its success, however, will depend on consistent execution, transparent governance, and the government’s ability to deliver measurable outcomes that strengthen Malaysia’s fiscal credibility and global competitiveness.