Budget 2027, the fifth MADANI Budget, will be tabled on 9 October 2026. The Pre-Budget Statement issued by the Ministry of Finance in August identified the reduction of regulatory burden as a policy priority. The business community will expect that this commitment extends beyond administrative processes to the tax rules themselves.
Amongst other tax measures, 2025 and 2026 delivered a material expansion of service tax scope into construction and rental, the commencement of stamp duty self-assessment, refinements to Capital Gains Tax (CGT), as well as the announcement and subsequent deferral of a carbon tax. The lesson learnt is that legislative design and implementation, rather than the announcement itself, determine whether a measure achieves its policy objective. Even a sound measure can become a compliance burden when introduced without adequate lead time.
Stamp duty is the natural starting point. The Stamp Act 1949 (SA 1949) is now in its eighth decade, and its language remains difficult to construe. Clarifying the definitions, the scope of charge, the categorisation of instruments under the First Schedule, the availability of exemptions and the identification of the person liable would eliminate a substantial volume of avoidable dispute.
Recent case law illustrates the point: whether an agreement attracts ad valorem duty under Item 22(1)(a), Item 22(1)(b) or Item 32(a), or nominal duty of RM10 under Item 4 of the First Schedule to the SA 1949, has turned on fine questions of instrument characterisation that taxpayers cannot reasonably be expected to resolve at the point of execution. That uncertainty is materially heightened by the phased rollout of stamp duty self-assessment from 1 January 2026, with instruments of transfer of property following in 2027, since self-assessment shifts the burden of correct characterisation onto the taxpayer. Legislation subject to self-assessment must be drafted in language that a taxpayer can understand and apply without professional assistance.
The same reasoning applies to administration. Stamp duty compliance remains voluminous despite the availability of online bulk-stamping facilities. For the majority of instruments, employment contracts being a representative example, the submission effort is disproportionate to the revenue at stake. A simplified online submission channel for exempt instruments and those attracting the RM10 fixed duty, coupled with reduced information requests and greater automation of data capture, would relieve compliance cost without revenue consequence.
A second item concerns the interaction between CGT and Real Property Gains Tax (RPGT). The definition of disposal for CGT purposes was amended by the Finance Act 2025 with effect from 1 January 2026 to include, among other events, the extinguishment of shareholder rights arising from the winding up or dissolution of a company, a position that the Inland Revenue Board maintains has applied since CGT was introduced. Since 1 January 2024, shares in a real property company held by a corporate shareholder have also been taken outside RPGT and brought within CGT. On a members' voluntary liquidation of a property-owning company, the disposal or distribution of the real property constitutes a disposal for RPGT purposes at the company level, while the corporate shareholder is treated as disposing of its shares in that company for CGT purposes within the same liquidation. The same underlying transaction in the property may therefore be taxed twice.
As CGT on unlisted shares applies to companies, limited liability partnerships, trust bodies and co-operative societies rather than individuals, the exposure falls squarely on corporate groups and may impede legitimate restructuring. Existing RPGT relief for distributions by a liquidator is confined to approved schemes of reorganisation, reconstruction or amalgamation. A targeted CGT relief for liquidation distributions attributable to gains that have already borne RPGT would resolve the overlap.
The third proposal concerns the tax policy horizon. Businesses generally make capital commitments on a three-to-five-year planning view, whereas tax measures announced in the annual budget are frequently set on a one-to-two-year cycle without a clear medium-term roadmap. A stated medium-term policy direction, including, if Goods and Services Tax (GST) is not to be reinstated within this cycle, the conditions precedent to its reconsideration or a commitment on timing, would contribute more to investor confidence than a further year of speculation.
Timely legislation and guidance are equally material. The New Incentive Framework took effect for manufacturing from 1 March 2026, while the services phase, originally targeted for the second quarter of 2026, remains outstanding. The carbon tax, first announced in Budget 2025 and reaffirmed in 2026, has had both its detail and its commencement deferred. In each case, businesses are aware that change is forthcoming but cannot model its effect with sufficient certainty to commit to investment decisions. Structured consultation with industry and the professional bodies before announcements, followed by realistic implementation lead times, would materially improve adoption.
GST is a broad-based, multi-stage tax designed to fall on final consumption, with input tax credits ensuring that registered businesses are not taxed on their costs. Its regressive incidence can be mitigated through zero-rating, exemption or a higher rate on luxury consumption. SST is a single-stage tax without a general credit mechanism, which is the structural source of cascading wherever a taxable input feeds a taxable output. Where the objective is to increase revenue, the scope for gain is constrained unless the burden reaches the rakyat, precisely the outcome the Government has avoided. Where the objective is to relieve double taxation and the resulting cost to businesses, a broader business-to-business (B2B) exemption would assist, but it would reduce rather than increase collections.
The preferable approach may be to prioritise features that reduce cascading and improve traceability, rather than those that replicate GST mechanics. Three measures merit consideration:
The test for any change to the SST system should be whether the benefit justifies the disruption. Where it does not, the more logical direction is to continue improving SST incrementally and to commit to a credible timeline for the eventual destination of GST implementation, rather than grafting GST features to an SST structure not designed to accommodate them.
The increase in the exemption threshold from RM1 million to RM3 million in annual turnover, announced on 30 August 2026, is a correction which reportedly removes more than 1.1 million businesses from the immediate mandate. It does not, however, operate as a blanket exemption. The revised guideline retains ownership-based exclusions, such that a business below the threshold remains within the mandate where it has a non-individual shareholder, holding company, related company or joint venture with turnover of at least RM3 million. Group structure, rather than the standalone revenue figure, is determinative.
Further refinement may follow, but a system carrying an excessive volume of exemptions cannot deliver its intended assurance objective. Leakage from the informal economy is not addressed by incomplete data. The appropriate response to MSME compliance costs is not additional exclusions, but a reduction in the cost of participation. This would include a simplified submission channel for micro-enterprises, fewer mandatory data fields for low-value transactions, continued reliance on consolidated invoicing, and financial or tax support for the initial system investment.
The relaxation period running to the end of 2027, with full enforcement from 2028, affords the authorities sufficient time to review the design of e-invoicing for MSMEs. Businesses should be encouraged to adopt e-invoicing because of its benefits, rather than merely comply to avoid penalties.
Amongst other tax measures, 2025 and 2026 delivered a material expansion of service tax scope into construction and rental, the commencement of stamp duty self-assessment, refinements to Capital Gains Tax (CGT), as well as the announcement and subsequent deferral of a carbon tax. The lesson learnt is that legislative design and implementation, rather than the announcement itself, determine whether a measure achieves its policy objective. Even a sound measure can become a compliance burden when introduced without adequate lead time.
A wish list anchored on the cost of doing business
The most consequential contribution Budget 2027 can make is a reduction in the cost of doing business, and the most cost-effective method of achieving this is not a further incentive, but simplification of the rules themselves. Clearer rules and procedures improve interpretive certainty, which in turn drives voluntary compliance at negligible fiscal cost to the Government.Stamp duty is the natural starting point. The Stamp Act 1949 (SA 1949) is now in its eighth decade, and its language remains difficult to construe. Clarifying the definitions, the scope of charge, the categorisation of instruments under the First Schedule, the availability of exemptions and the identification of the person liable would eliminate a substantial volume of avoidable dispute.
Recent case law illustrates the point: whether an agreement attracts ad valorem duty under Item 22(1)(a), Item 22(1)(b) or Item 32(a), or nominal duty of RM10 under Item 4 of the First Schedule to the SA 1949, has turned on fine questions of instrument characterisation that taxpayers cannot reasonably be expected to resolve at the point of execution. That uncertainty is materially heightened by the phased rollout of stamp duty self-assessment from 1 January 2026, with instruments of transfer of property following in 2027, since self-assessment shifts the burden of correct characterisation onto the taxpayer. Legislation subject to self-assessment must be drafted in language that a taxpayer can understand and apply without professional assistance.
The same reasoning applies to administration. Stamp duty compliance remains voluminous despite the availability of online bulk-stamping facilities. For the majority of instruments, employment contracts being a representative example, the submission effort is disproportionate to the revenue at stake. A simplified online submission channel for exempt instruments and those attracting the RM10 fixed duty, coupled with reduced information requests and greater automation of data capture, would relieve compliance cost without revenue consequence.
A second item concerns the interaction between CGT and Real Property Gains Tax (RPGT). The definition of disposal for CGT purposes was amended by the Finance Act 2025 with effect from 1 January 2026 to include, among other events, the extinguishment of shareholder rights arising from the winding up or dissolution of a company, a position that the Inland Revenue Board maintains has applied since CGT was introduced. Since 1 January 2024, shares in a real property company held by a corporate shareholder have also been taken outside RPGT and brought within CGT. On a members' voluntary liquidation of a property-owning company, the disposal or distribution of the real property constitutes a disposal for RPGT purposes at the company level, while the corporate shareholder is treated as disposing of its shares in that company for CGT purposes within the same liquidation. The same underlying transaction in the property may therefore be taxed twice.
As CGT on unlisted shares applies to companies, limited liability partnerships, trust bodies and co-operative societies rather than individuals, the exposure falls squarely on corporate groups and may impede legitimate restructuring. Existing RPGT relief for distributions by a liquidator is confined to approved schemes of reorganisation, reconstruction or amalgamation. A targeted CGT relief for liquidation distributions attributable to gains that have already borne RPGT would resolve the overlap.
The third proposal concerns the tax policy horizon. Businesses generally make capital commitments on a three-to-five-year planning view, whereas tax measures announced in the annual budget are frequently set on a one-to-two-year cycle without a clear medium-term roadmap. A stated medium-term policy direction, including, if Goods and Services Tax (GST) is not to be reinstated within this cycle, the conditions precedent to its reconsideration or a commitment on timing, would contribute more to investor confidence than a further year of speculation.
Timely legislation and guidance are equally material. The New Incentive Framework took effect for manufacturing from 1 March 2026, while the services phase, originally targeted for the second quarter of 2026, remains outstanding. The carbon tax, first announced in Budget 2025 and reaffirmed in 2026, has had both its detail and its commencement deferred. In each case, businesses are aware that change is forthcoming but cannot model its effect with sufficient certainty to commit to investment decisions. Structured consultation with industry and the professional bodies before announcements, followed by realistic implementation lead times, would materially improve adoption.
Adopting GST features without reconstructing
The Government has indicated a willingness to examine selected GST features within the existing SST framework while retaining SST. The key requirement is to articulate the objective clearly, because the two plausible objectives operate in opposite directions.GST is a broad-based, multi-stage tax designed to fall on final consumption, with input tax credits ensuring that registered businesses are not taxed on their costs. Its regressive incidence can be mitigated through zero-rating, exemption or a higher rate on luxury consumption. SST is a single-stage tax without a general credit mechanism, which is the structural source of cascading wherever a taxable input feeds a taxable output. Where the objective is to increase revenue, the scope for gain is constrained unless the burden reaches the rakyat, precisely the outcome the Government has avoided. Where the objective is to relieve double taxation and the resulting cost to businesses, a broader business-to-business (B2B) exemption would assist, but it would reduce rather than increase collections.
The preferable approach may be to prioritise features that reduce cascading and improve traceability, rather than those that replicate GST mechanics. Three measures merit consideration:
- The B2B exemption should be further simplified and placed on a general, self-executing statutory basis rather than administered through an accumulating series of policy amendments, so that a registered person acquiring a taxable service for onward taxable supply obtains relief as of right.
- E-invoicing data should be deployed for invoice matching, an element of the GST architecture that delivers genuine audit assurance, and one that functions independently of a credit mechanism.
- The sales tax and service tax regimes could be aligned on registration, taxable periods, invoicing, grouping and exemptions, with rates standardised into a small number of categories: zero, standard, and a special rate where policy requires. At present, the tax outcome too frequently depends on contractual drafting rather than the substance of the activity, construction as against manufacturing, management services as against a taxable supply of the same activity, warehousing as against rental. Commercial drafting should not be driven by tax consequences, and this complexity places an unnecessary strain on business resources.
The test for any change to the SST system should be whether the benefit justifies the disruption. Where it does not, the more logical direction is to continue improving SST incrementally and to commit to a credible timeline for the eventual destination of GST implementation, rather than grafting GST features to an SST structure not designed to accommodate them.
E-invoicing following the RM3 million reset
The original policy rationale for e-invoicing was to broaden the tax base, bring the shadow economy within the tax net, and establish a verifiable audit trail across the economy. That rationale is unchanged. What has been recognised is that the cost of implementation for micro, small, and medium enterprises (MSMEs) is impractical and disproportionate to their revenue.The increase in the exemption threshold from RM1 million to RM3 million in annual turnover, announced on 30 August 2026, is a correction which reportedly removes more than 1.1 million businesses from the immediate mandate. It does not, however, operate as a blanket exemption. The revised guideline retains ownership-based exclusions, such that a business below the threshold remains within the mandate where it has a non-individual shareholder, holding company, related company or joint venture with turnover of at least RM3 million. Group structure, rather than the standalone revenue figure, is determinative.
Further refinement may follow, but a system carrying an excessive volume of exemptions cannot deliver its intended assurance objective. Leakage from the informal economy is not addressed by incomplete data. The appropriate response to MSME compliance costs is not additional exclusions, but a reduction in the cost of participation. This would include a simplified submission channel for micro-enterprises, fewer mandatory data fields for low-value transactions, continued reliance on consolidated invoicing, and financial or tax support for the initial system investment.
The relaxation period running to the end of 2027, with full enforcement from 2028, affords the authorities sufficient time to review the design of e-invoicing for MSMEs. Businesses should be encouraged to adopt e-invoicing because of its benefits, rather than merely comply to avoid penalties.