2027 Budget tax breaks target MSMEs, investors: Wong & Partners

KUALA LUMPUR: The 2027 Budget offers targeted tax relief for micro, small and medium enterprises (MSMEs) and businesses investing in automation, digitalisation and green technology.

Wong & Partners, a member firm of Baker McKenzie International, said it also

strengthens Malaysia's appeal as a regional investment and wealth management hub.

Yvonne Beh, partner in the tax, trade and wealth management practice at Wong & Partners, said the budget was broadly pro-investment and pro-productivity.

It features incentives focused on strategic sectors such as semiconductors, electrical and electronics, advanced manufacturing, artificial intelligence, renewable energy and medical devices.

She noted that the government had not introduced new taxes, opting instead for targeted tax cuts, enhanced capital allowances, stamp duty concessions and financing support to help businesses manage rising operating and financing costs.

One significant proposal is a sales tax refund facility for manufacturers on machinery, spare parts and equipment purchased from local traders or distributors.

The facility will also cover raw materials used in manufacturing, pharmaceuticals, animal feed, fertilisers and pesticides.

Beh said the measure could reduce the cascading effect of sales tax along supply chains while encouraging businesses to source from local distributors.

The extension of accelerated capital allowances for locally produced plant and machinery, information and communications technology equipment and software until Dec 31, 2030, will also allow businesses to claim tax deductions sooner, improving cash flow and supporting productivity-enhancing investments.

Meanwhile, a one-percentage-point reduction in income tax rates for MSMEs is expected to free up cash for working capital and reinvestment.

Beh also welcomed enhanced Global Services Hub incentives, effective Jan 1, 2027.

This includes a five per cent preferential tax rate on qualifying income for new companies and income above a prescribed baseline for existing Principal Hub or Global Services Hub companies.

The incentives, renewable in five-year blocks for up to 30 years, will also include withholding tax exemptions on interest paid by qualifying treasury and fund management operations, as well as stamp duty exemptions on intercompany loan agreements.

Green investment incentives, including a 100 per cent investment tax allowance for eligible green technology projects and assets, will be extended until Dec 31, 2030.

The proposed multi-family office model in Forest City, Johor, could further attract regional private capital, fund managers and professional services activities to Malaysia, she said.