MALAYSIA does not need to introduce new mainstream taxes in 2026 to strengthen government revenue, as the existing tax framework already provides ample scope for improvement through better enforcement, administration and compliance, industry experts said.
As the country looks ahead to 2026, tax specialists stressed that the government must strike a careful balance between boosting revenue and sustaining economic growth, particularly at a time when businesses and taxpayers are still adjusting to recent changes.
New Straits Times reported Thannees Tax Consulting Services Sdn Bhd director Sangeetha Balan, on Wednesday, saying ongoing reforms, including the expansion of the Sales and Service Tax (SST) and the phased rollout of e-invoicing, have already placed significant demands on businesses.
“Introducing new taxes now may risk reform fatigue and could undermine business confidence, particularly among small and medium enterprises (SMEs),” she told Business Times.
To maximise revenue without new taxes, Sangeetha said the government should focus on strengthening enforcement of existing tax laws, especially in high-risk and under-reported sectors. She also highlighted the importance of improving tax administration and data integration, with e-invoicing playing a critical role in reducing leakages, under-reporting and the size of the shadow economy.
Ernst & Young Tax Consultants Sdn Bhd Malaysia tax managing partner Farah Rosley echoed the need for balance, saying any new tax measures must carefully consider their impact on economic recovery and long-term development.
“Malaysia continues to navigate the complexities of economic recovery and sustainable development and any new taxes needs to be able to address emerging challenges and promote equitable growth,” she said.
She added that close monitoring of previously announced tax measures was essential to ensure they achieved their intended outcomes and remained simple to administer.
Several tax changes are already scheduled for implementation in 2026. These include a carbon tax targeting high-emission industries such as iron, steel and energy, in line with Malaysia’s climate policy and net-zero ambitions. Excise duties on alcohol and tobacco products will also be raised, primarily to discourage harmful consumption while channeling additional revenue to the Health Ministry for the treatment of diabetes and heart disease.
In addition, stamp duty for foreign buyers of Malaysian residential property will be increased from four per cent to eight per cent.
“No new mainstream taxes, such as Goods and Services Tax expected for general consumers in 2026. Instead, the focus is on existing tax expansion, compliance and enforcement,” Sangeetha said.
Malaysia’s revenue base is also being reshaped by capital gains and dividend taxes introduced in recent years. Since 2024, capital gains tax has applied to certain share disposals by companies and limited liability partnerships. From 2025, a two per cent tax applies to dividend income of individuals from Malaysian sources exceeding RM100,000, with the same rate extended to distributions from limited liability partnerships to individuals beginning next year.
Farah said effective implementation of these measures would be critical as Malaysia enters the next fiscal year.
“It is also important that continuous engagement with stakeholders is being done and conducting thorough impact assessments will be crucial to ensure that these measures are effective and widely accepted,” she said.
Sangeetha also suggested that the government review withholding tax requirements, which apply to certain payments made to non-residents and are collected by the Inland Revenue Board.
She said compliance obligations for withholding tax often impose burdens that outweigh their revenue benefits, especially for SMEs.
“For example, withholding tax on small-value payments to non-residents, particularly for technical or professional services. For many SMEs, withholding tax compliance is complex, error-prone and often results in disputes or penalties rather than meaningful revenue collection,” she said.
“A de minimis threshold or partial abolition for low-value transactions would reduce friction while allowing tax authorities to focus on material cases.”
Looking ahead, Sangeetha said Malaysia’s tax reform agenda should place greater emphasis on certainty, simplicity and trust-based compliance rather than heavy-handed enforcement.
“While necessary, over reliance on enforcement can undermine voluntary compliance. Tax reform should move towards improving taxpayer education and fairness,” she said, calling for clearer laws, better public rulings, advance guidance and risk-based audits that target higher-risk cases instead of blanket enforcement.
She also said public acceptance of tax reform would improve if taxpayers could clearly see how additional revenue was being spent, particularly on visible outcomes such as healthcare, education and infrastructure.
Farah said broader reforms could further strengthen Malaysia’s fiscal sustainability, including widening the tax base by reducing reliance on income tax and increasing the share of consumption taxes through SST expansion and e-invoicing.
“In respect of SST, it will be worthwhile to revisit exemptions available and ensure that any cascading tax effect that will impact the final cost of the goods and services is being addressed to ensure no escalation of price of goods and services in the market,” she said.
She added that Malaysia could align tax policy more closely with global sustainability goals by offering incentives for renewable energy investment and environmentally friendly business practices, such as tax credits for green technology and deductions for sustainable operations.
Farah also said a review of corporate tax rates and incentives could help attract foreign direct investment, particularly in sectors aligned with national priorities.
“Offering targeted tax incentives for industries aligned with national priorities, such as technology, advanced manufacturing and making Malaysia as a hub for financial services and regional or global services, could stimulate economic growth,” she said.
“Implementing these tax reforms could help Malaysia create a more equitable, efficient and sustainable tax system,” she added, stressing that stakeholder engagement and thorough impact assessments would be key to ensuring long-term success. - December 31, 2025
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