September 10, 2025
PETALING JAYA – The jury is still out on whether or not the government will impose new types of taxes in the upcoming Budget 2026, which is slated to be tabled by the government on Oct 10.
Economists surveyed by StarBiz appeared divided on whether the government will choose to do so, noting the stretched state of the domestic economy following the recent expanded sales and service tax (SST) and the implementation of e-invoicing.
They also warned that further taxes could dent domestic demand outlook at a time when exports are expected to go through an uncertain period due to US tariffs.
This would then in turn directly impact the gross domestic product (GDP) growth outlook.
A potentially lowered subsidy bill from the soon to be announced targeted subsidy disbursement for Malaysians may also help to further boost the country’s coffers and reduce government subsidy expenditures.
Although any sustained lower oil prices on higher than usual supplies could remain a slight drag on the topline, further transition to renewable sources may help to buffer any slowdown in this segment of the economy.
Executive director and economist at Socio-Economic Research Centre Lee Heng Guie does not expect the government to resort to introducing new forms of taxes, although it might follow up on earlier announced ones.
“These include carbon taxes or tobacco taxes. There is a committee formed to try to green the iron and steel sector, and if there are any carbon taxes, we hope it will be a small tax to begin with, a high tax will also be a burden and it will need compliance costs for companies.
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“Meanwhile, tobacco taxes can go directly to fund healthcare initiatives. There should also be a firm ban on vapes due to the dangers behind these devices upon the younger generation, especially their interlacing with dangerous drugs,” Lee told StarBiz.
He added that any further taxation measures can burden businesses and individual taxpayers.
“One should bear in mind that this year alone, multiple costs have been added upon businesses and corporates – the raising of the minimum wage, e-invoicing, environmental, social and governance compliance costs, expanded SST, the 2% employees provident fund contribution for foreign workers and the increase in electricity and water tariffs in some states,” he noted.
Lee said the government should also bear in mind that the economy has slowed down amid international tariff uncertainties and this outlook is expected to prolong into the next year.
“The RM100 cash transfer through the Sumbangan Asas Rahmah using the identity card is an effective initiative that can be further built upon since it ensures the money truly reaches the intended recipient and the difference it makes to one’s monthly expenditures is truly felt,” Lee said.
Meanwhile, IPP Wealth Managers Ltd’s investment strategist and country economist Mohd Sedek Jantan said he does not expect any new tax to be introduced in the upcoming Budget 2026 since economic growth is seen to be affected by external factors.
“The government is likely to maintain a balanced stance while seeking to minimise the impact on the people.
“Budget 2026 is expected to preserve an expansionary fiscal stance,” Mohd Sedek said.
Further commenting on this, professor of economics at Sunway University, Malaysia, Prof Yeah Kim Leng said further major tax overhauls are not expected in the Budget 2026, adding however that there may be “tweaks here and there.”
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“Further fine-tuning of the SST may be undertaken in terms of coverage, though rate changes are unlikely given the substantial adjustments already made this year.
“Targeted revisions to sin and health taxes are possible to encourage healthier lifestyles, alongside clearer guidance on carbon taxation, but no major tax overhauls are expected,” Yeah said.
He added that the budget is likely to prioritise resilient growth through sustained development spending in the economic sector, with a strong emphasis on attracting high-quality, high-value domestic and foreign investments.
“To further strengthen social and economic foundations, additional fiscal measures are expected to broaden access and opportunities in education, healthcare, housing and welfare support for the low and middle-income groups,” Yeah said.
BIMB Securities Research said it believes the government could announce a series of new tax and non-tax measures in Budget 2026 to safeguard revenue sustainability and to advance its fiscal consolidation objectives.
“These are likely to include the introduction of a carbon tax, consistent with Malaysia’s energy transition and climate commitments, as well as a potential revision of the existing tourism tax regime,” BIMB Research said.
Despite heightened global uncertainties, Yeah said Malaysia’s growth is projected to remain steady at a moderate 4% to 5% in 2026.
“In line with this outlook, Budget 2026 is expected to adopt a mildly expansionary stance, with spending calibrated to medium-term fiscal objectives, particularly a narrower deficit and debt maintained below the 65% threshold.
Commenting on national debt, Mohd Sedek noted the government has set a target to lower the federal debt-to-GDP ratio from 64.2% in 2025 to 60% by 2030, supported by measures such as moderating annual borrowings (at around RM80bil), extending debt maturities to an average of 9.5 years or more, and maintaining nominal GDP growth.
“At the same time, debt servicing costs — currently exceeding RM54.7bil annually— represent a significant fiscal commitment and may limit the scope for development expenditure if additional revenue sources are not secured,” he pointed out.
Mohd Sedek noted the 13th Malaysia Plan’s 4.5% to 5.5% GDP growth target would be driven by public-private partnerships and investments in high-value sectors such as artificial intelligence and green technology, while maintaining a fiscal deficit of approximately 3.5% to 3.8%, in line with the Fiscal Responsibility Act 2023.
Commenting on the country’s deficits, Lee said he expects the deficit target to be lowered further to 3.3% to 3.5% next year, while this year this would be at 3.8%.
“There is anticipated to be a slight increase in expenditures to circa RM88bil for 2026 from RM85bil this year. I anticipate there could be further allocation or interest into the tourism sector with Visit Malaysia 2026 and the construction sector as well,” Lee said.
Meanwhile, BIMB Research said the fiscal deficit is also expected to hit a seven-year low at minus 3.5% for 2026.
As outlined in the 13th Malaysia Plan, the gross development expenditure is projected to be at RM86bil in 2026.
“While the absolute figure is higher, it translates to less than 4% of GDP, reflecting a relatively contained fiscal impulse.
“Both revenue and operating expenditures are expected to expand at a modest pace, broadly in line with the projected 4.4% real GDP growth,” BIMB Research said.
The research house expects a sustained expansionary fiscal stance that would be supported by domestic demand due to challenging external conditions.
“We project Malaysia’s GDP to expand by 4.4% in 2026, underpinned by supportive policies and steady household and investment activity.
“Our in-house forecast assumes Brent crude oil prices will average at US$72 per barrel in 2026, a slight improvement from this year’s average,” BIMB Research said.