BUDGET 2025 underscores Malaysia’s commitment to advancing digitalisation, fostering artificial intelligence (AI) adoption and promoting inclusive growth. Projections indicate that by 2025, the digital economy will contribute 25.5% to the gross domestic product (GDP) and create up to 500,000 jobs.
The government’s digital transformation initiatives in Budget 2025 aim to propel Malaysia to the forefront of global digital innovation. To achieve this, significant investments in digitalisation and AI are required, creating a fertile ground for advanced technological developments and high-growth opportunities.
This year, the country has welcomed US$16.9bil in investments from global technology giants such as Amazon Web Services, Microsoft, Google and Oracle.
Through its strong emphasis on inclusive growth, the budget ensures that benefits are channelled to those who need them the most, such as small and medium enterprises (SMEs) and micro-entrepreneurs. By enabling these smaller entities to harness digital technologies, the budget aims to democratise access to innovation, contributing to economic equity.
Artificial intelligence
Budget 2025 places a strong emphasis on AI readiness, significantly increasing allocations for AI research and innovation in universities. With RM10mil allocated to the National AI Office and RM50mil for AI education, the government demonstrates a steadfast commitment to developing AI capabilities and nurturing a skilled talent pool.
This not only bolsters Malaysia’s AI infrastructure, but also paves the way for greater private sector participation in advancing AI research and supporting academic initiatives. The establishment of the Asean AI Safe Network further underscores our dedication to ethical AI practices. The expansion of research and development funding to RM600mil will be pivotal in exploring next-generation opportunities at the intersection of AI and science. This enables local researchers to address complex challenges around the safe and ethical use of AI, to deliver substantial societal benefits.
Education sector
To foster the creation of high-income jobs in the fields of AI as well as research and development, a special tax deduction will be available to private universities and skills training institutes that develop new courses such as AI, robotics, Internet of Things, data science, financial technology and sustainable technology. To further support the education sector, Internet coverage at public universities, schools, Armed Forces Camps and Mara institutes will be expanded, as well as Internet access to schools in villages and remote areas using fixed-line broadband.
Strengthening confidence in the digital economy
To bolster our digital economy, which is key to driving investment, it is necessary to have an enabling environment with the right capabilities. the MyDigital ID initiative will see enhanced functionality and improved user experience.
This will enable digital transformation, serving as a common denominator for services from government service providers like Pangkalan Data Utama or Padu, Road Transport Department and the Inland Revenue Board.
In addition, Budget 2025 proposed to strengthen of the legislative framework (specifically Act 574 of the Penal Code and Act 593 of Criminal Procedure Code) for more effective enforcements.
The proposal also included an additional 100 employees to the National Cyber Security Agency together with an extra allocation of RM10mil. The Online Safety Bill, which is set to be tabled soon, will be timely in combating cyberbullying and cybercrimes towards a safer cyber ecosystem.
Investments in related industry and infrastructure
As Malaysia’s potential as a fast-growing data centre hub opens up opportunities for the country’s transition towards renewable energy, it is encouraging to note the support available.
There were a couple of funds set aside for such investments; for example Dana Pemacu under Kumpulan Wang Persaraan (Diperbadankan) or KWAP will be providing RM500mil next year to be invested in data centres, energy transition and advanced manufacturing.
In addition, Khazanah is also setting aside RM1bil over the next four years for investments supporting the local semiconductor industry.
Increased support for SMEs and entrepreneurs
To ensure that small businesses and entrepreneurs are not left behind in this digital transformation, it is essential for an approach that focuses on equitable growth to ensure that everyone benefits from digital advancements. A total of RM50mil has been made available through the Digital Matching Grant for SMEs and the Digital Grant for Vendors under Bank Simpanan Nasional.
These are vital resources for SMEs seeking to adopt digital tools, automate processes and improve operational efficiency. These grants are designed to help SMEs remain competitive in the digital economy.
Other tax incentives
To encourage full implementation of e-Invoicing by July 1, 2025, the government is proposing accelerated capital allowances (ACAs) for expenses related to the purchase of information and communication technology (ICT) equipment, computer software packages and consultancy fees, allowing these costs to be fully claimed within two years.
Previously, Budget 2024 proposed revising ACA rates to an initial and annual allowance of 20% on ICT equipment and computer software.
Budget 2025 further revises these rates to an initial allowance of 20% and an annual allowance of 40%, effective from 2024 to 2025.In closing, Budget 2025 has plenty to offer, showcasing the Madani government’s firm commitment in advancing the nation’s push for digital transformation with a strong emphasis on the adoption of AI.
Through the various proposals, the government has taken a comprehensive approach by enabling investments in digital infrastructure, education, research and development, cybersecurity as well as extended support for SMEs and local startup ecosystems.
To fully leverage the support and brace for the impending digital shift, businesses should start by initiating small-scale changes, such as digitising records and integrating digital tools, as well as upskilling to ease the transition. They should also capitalise on available financial support, engage with industry groups to share feedback and stay abreast of new developments, and prioritise cybersecurity to safeguard their data and information technology systems. By taking these measures, businesses can optimise the benefits of digital transformation and contribute to the nation’s digital economy.
Yap Sau Shiung is head of digital, tax technology partner at PwC Malaysia. The views expressed here are the writer’s own.
