The Third Budget under the MADANI Economic Framework: Belanjawan 2025 - Reinvigorating the Economy, Driving Reforms, and Prospering the Rakyat

By ICDM

On 18 October 2024, the Prime Minister and Finance Minister, Dato’ Seri Anwar Ibrahim, tabled the Malaysia MADANI Budget 2025, which contained 60 initiatives aligned with its theme “Reforming the Economy, Fueling Change, and Bringing Prosperity to the People”.

This 2025 National Budget stands on 5 Key Pillars, which are:

Navigating the MADANI Economy
Implementing Reforms More Decisively
Eliminating Bureaucratic Red Tape
Increasing Wages and Incomes
Addressing the Cost of Living

The Malaysia MADANI Budget 2025 has become the largest budget the nation has ever seen, with a whopping RM421 billion. Operating expenditures (OpEx) make up 80% of the sum, with RM335 billion allocated, and the remaining 20% (RM86 billion) is for development expenditures (DevEx).

There are significant differences across the three MADANI budgets, as shown below:

Year	Total Allocation	Operating Expenditure (OpEx)	Development Expenditure (DevEx)
2023	RM 393.8 billion	RM 303.8 billion	RM 90 billion
2024	RM 388.1 billion	RM 289.1 billion	RM 99 billion
2025	RM 421 billion	RM 335 billion	RM 86 billion

Below are some of the highlights of MADANI Budget 2025 in supporting business continuity and resilience:

Corporate Tax

Tax Incentive for Companies Hiring Women Returning to Work – A 50% further deduction for employers on employment expenses for 12 months for hiring women returning to work.
Tax Incentives for Carbon Capture, Utilisation & Storage (CCUS) Activities – Investment tax allowances and income tax exemption are provided to CCUS activities to promote ESG-based investments. Further details are expected to be released in due course.
Tax Incentive for Providing Caregiving Leave Benefit – A 50% deduction given to employers who provide additional paid leave of up to 12 months for employees caring for children or ill or disabled family members. For applications received by Talent Corporation Malaysia Berhad from 1 January 2025 until 31 December 2027.
Tax Incentives for Implementing e-invoicing – Purchase of ICT equipment, computer software packages and consulting fees will be given an accelerated capital allowance that can be claimed within two years from YA 2024 to YA 2025.

Qualifying Expenditure

Capital Allowance Rate

ICT equipment and computer software package

· Initial allowance: 20%

· Annual allowance: 40%

Consultation, licensing, and incidental fees related to customised computer software development

Tax Incentive for Employers Implementing Flexible Working Arrangement – Additional 50% tax deductions for the cost of capacity-building and software procurement by employers in implementing flexible working arrangements. The expenses are capped at RM500,000. For applications received by Talent Corporation Malaysia Berhad from 1 January 2025 until 31 December 2027.

Individual Tax

Tax on Dividend Received by Individual Shareholders – A dividend tax of 2% will be imposed on chargeable dividend income (after considering allowances and deductions) received by individual shareholders with annual dividend income exceeding RM100,000.
Tax Exemption on Income from Sources Outside Malaysia Received in Malaysia – Foreign sourced income tax exemptions received by individual residents in Malaysia are extended until 31 December 2036.
Tax Relief on Expenses for Green Technology Equipment – The scope for relief on expenses for electric vehicle charging equipment up to RM2,500 is expanded to include purchasing food waste composting machines for household use. The relief for the food waste composting machines can be claimed within three-year assessments.

Stamp Duty

Stamp Duty on Loan or Financing Agreements through the Initial Exchange Offering (IEO) Platforms for MSME – 100% stamp duty exemptions proposed to be given on loan or financing agreements executed by MSME and investors through IEO platforms registered with the Securities Commission Malaysia for 2 years. Applicable to loan or financing agreements executed from 1 January 2025 until 31 December 2026.
Stamp Duty on Loan or Financing Agreements for Skim Pembiayaan Mikro (SPM) – Stamp duty exemption for loan or financing agreements under SPM between MSMEs and financial institutions will be expanded to cover agreements for amounts up to RM100,000. Applicable to loan or financing agreements under the SPM executed from 1 January 2025.

Other

Sales and Service Tax (SST) – SST will be implemented more progressively effectively on 1 May 2025. The scope for SST will be broadened to include B2B commercial service transactions and non-essential food items.
Carbon Tax – This tax will be introduced on the iron and steel, and energy industries by 2026 to align with the European Union’s Carbon Border Adjustment Mechanism (CBAM). This is to encourage the adoption of low-carbon technologies, and the proceeds will be used to fund green research and technology programs.

The summaries below provide good overviews of the Malaysia MADANI Budget 2025: