The budget has the potential to drive a roadmap for a competitive, inclusive and sustainable future.
AS Budget 2025 draws near, expectations are high, fuelled by the government’s goals to achieve the objectives of the Madani Economy.
In its pre-budget statement, three short-term goals were identified – restructuring the economy towards greater competitiveness and higher value-added activities, improving the quality of life and promoting equal opportunities, and strengthening governance and public delivery.
Sustaining our gross domestic product (GDP) growth, which advanced by 5.9% in the second quarter of 2024, amid global challenges arising from geopolitical shifts, rising temperatures and ongoing conflicts requires tactful initiatives if we are to achieve the objectives set in the Madani Economy.
Key initiatives aimed at easing the cost of living, enhancing healthcare accessibility, promoting sustainability, embracing digitalisation and artificial intelligence (AI), simplifying tax administration and leveraging global supply chain developments are possible areas we could expect in Budget 2025.
Cost of living and healthcare access
One of the most relatable issues for many is mitigating the rising cost of living, a challenge not unique to Malaysia.
Recently, the implementation of targeted diesel subsidies has sparked concerns about its impact on living expenses.
There is an expectation that potential savings from these measures should counter any adverse consequences, such as through the cash assistance programmes.
Reviewing personal tax reliefs to increase household liquidity, perhaps through a tiered relief system for the lower-and middle-income groups, could be explored where higher lifestyle relief (from the current RM2,500 to say, RM3,500) or broader types of relief is offered to the groups.
Another area of interest is accessibility to affordable and quality healthcare amid rising cost pressures on both public and private healthcare providers.
Expanding healthcare offerings across the value chain through greater collaboration between the private and public sectors is likely to be one of the enablers to ensure wider coverage.
In addition, consideration should be given to re-evaluate the current value of medical-related personal tax reliefs in keeping with the rising cost.
Sustainability and society
Malaysia’s commitment to reducing greenhouse gas emission intensity by 45% by 2030 underscores the need for action with tangible outcomes.
This could involve expanding tax incentives to encourage greater adoption of green technologies and stimulate further innovation among businesses.
While the government may not have plans to introduce a carbon tax in Budget 2025, there should be a clear timeline and well-defined conditions to signal an implementation roadmap, easing adoption when the time arises.
In the meantime, measures should be introduced to encourage voluntary practices such as internal carbon pricing mechanisms or programmes where the cost to train and adopt such programmes is given tax deductions and where deserved, a further tax deduction.
On the social front, diversity and inclusion is vital for an equitable society – the upcoming budget is a chance to demonstrate support in this area towards a resilient economy.
This could mean offering incentives for efforts made to ensure inclusive hiring for wider types of abilities, reducing gender gaps and extending tax exemptions for women returning to work.
Digitalisation and AI
Digitalisation and AI is expected to drive future growth, but its adoption must not be at the expense of adverse environmental impacts due to its energy needs.
Measures to encourage the responsible adoption of new technology should be included in Budget 2025 to put into action the National Digital Blueprint.
Initiatives such as smart cities, digital healthcare solutions and AI-driven agricultural practices could ensure that the benefits of digitalisation permeate all sectors of the economy.
The government should also continue to broaden its efforts to adopt digitalisation and AI to improve its own service delivery.
The workforce should be encouraged and supported to upskill, improving productivity and adaptability to new technologies.
Policies must be in place to protect citizens and the workforce, ensuring that the digital transition is inclusive, equitable and environmentally conscious.
Tax administration with e-invoicing
Addressing tax leakages is a perennial issue. E-invoicing, which will be fully adopted by July 2025, is expected to ease tax administrative burdens and simplify processes.
Automated data collection and real-time reporting is expected to reduce manual paperwork, making tax compliance easier for taxpayers.
Additionally, it will improve the efficiency of tax audits and decrease the likelihood of tax evasion, leading to more accurate and timely tax collections.
The government should consider allowing tax deductions for compliance costs, expanding this allowance beyond micro, small and medium enterprises to larger businesses for a smoother transition.
The budget announcement can be potentially utilised to offer a preview of the nation’s broader digitisation agenda, particularly outlining what taxpayers and the general public can anticipate for better preparation following the first-stage of e-invoicing implementation.
Geopolitical shifts and global supply chains
Turning our attention towards geopolitical shifts and its impact on the global supply chain landscape, Budget 2025 is an ideal platform to outline strategies for leveraging these shifts, positioning Malaysia as a key player in global trade.
Investments in logistics infrastructure, trade facilitation measures and strategic partnerships with other nations will be crucial. By enhancing the country’s role in global supply chains, Malaysia stands to attract quality foreign investment, create jobs and boost economic growth.
The launch of the National Semiconductor Strategy (NSS) at the Semicon South-East Asia 2024 Conference marks a significant advancement.
Supported by US$5.3bil in fiscal incentives, this three-phase plan aims to position Malaysia as a global semiconductor leader over the next decade, bolstered by our end-to-end supply chain, skilled workforce and world-class infrastructure, alongside a neutral economic policy.
The budget has the potential to drive a roadmap for a competitive, inclusive and sustainable future. By focusing on the above measures, the government will be better placed to address both immediate needs and long-term aspirations.
As we await the official announcement, one thing is clear; Budget 2025 will be a pivotal step in transforming the economy and paving the way for the benefits of economic progress to be shared more equitably.
Taariq Murad is a tax partner at PwC Malaysia. The views expressed here are the writer’s own.
