Malaysia Budget 2025: Highlights, Key Takeaways, Important Points

The Malaysia Budget 2025, presented as the Third MADANI Budget by Prime Minister YAB Dato' Seri Anwar Bin Ibrahim, outlines a strategic roadmap for the nation's economic growth and reforms. With a record RM421 billion allocation, the Budget 2025 Malaysia aims to tackle critical issues such as inequality, infrastructure development, and public welfare, all while upholding fiscal responsibility. 

The budget focuses on the Ekonomi MADANI framework, targeting three key pillars: Reinvigorating the Economy, Driving Reforms, and Prospering the Rakyat.

In this blog, we will provide a detailed summary of Malaysia’s Budget 2025 and break down its major highlights. You'll also find a links to the official Budget 2025 Malaysia PDFs.

Budget 2025 Malaysia Summary

Major Pillars of Malaysia Budget 2025

Reinvigorating the Economy: The budget focuses on economic recovery by fostering innovation and investing in infrastructure. It aims to stimulate sustainable growth through high-value industries, digitalization, and clean energy. 

Driving Reforms: Fiscal responsibility is a key pillar, guided by the Public Finance and Fiscal Responsibility Act 2023, which aims to manage public debt and reduce the fiscal deficit to 3.8% of GDP by 2025. Additionally, governance reforms focus on enhancing transparency and fighting corruption through stronger institutional frameworks and anti-corruption initiatives.

Prospering the Rakyat: The budget emphasizes inclusive policies aimed at empowering marginalized communities, improving healthcare, and expanding social welfare programs. There is significant investment in education, healthcare, and infrastructure to improve the overall well-being and quality of life for Malaysians.

Economic Outlook

GDP Growth: Malaysia’s economy is forecasted to grow between 4.5%-5.5% in 2025, driven by robust domestic demand and recovery in exports. Growth in key sectors such as services, manufacturing, and construction will continue.

Inflation: Headline inflation is expected to rise moderately, ranging from 2.0%-3.5% in 2025.

Fiscal Deficit: The government aims to reduce the deficit from 4.3% in 2024 to 3.8% in 2025, with a target of 3% by 2026.

Debt-to-GDP: The debt remains below the statutory ceiling of 65%, at 63.1% of GDP as of June 2024.

Sectoral Growth Projections:

• Services: Expected to grow by 5.5%.
• Manufacturing: Forecast to expand by 4.5%.
• Construction: Predicted to increase by 9.4%, fueled by infrastructure projects.

Key Highlights of the Budget: Revenue and Expenditure

In 2025, Malaysia's federal budget outlines a comprehensive financial strategy, prioritizing both revenue growth and efficient expenditure management. Here's a breakdown 

Revenue Growth

• Total Revenue: RM340 billion projected in 2025, a 5.5% increase from 2024.
• Revenue Enhancements: Driven by higher direct and indirect tax collections, including reforms in Sales and Service Tax (SST) and the introduction of a 2% dividend tax on incomes over RM100,000.
• Expanding the Tax Base: SST is extended to include business-to-business services and non-essential goods from May 2025.

Expenditure Breakdown

• Total Expenditure: RM421 billion, the largest in Malaysia's history.
• Operating Expenditure (OE): RM335 billion allocated to public administration, debt service charges, and essential services.
• Development Expenditure (DE): RM86 billion focused on infrastructure, innovation, and public sector improvements.
• Fiscal Deficit: The budget deficit is targeted to narrow to 3.8% of GDP in 2025, continuing the government's focus on fiscal responsibility.

Allocation of Budget Across Segments in Malaysia’s Budget 2025

The allocation of funds in budget 2025 Malaysia also aligns with Malaysia’s commitment to economic reforms and fiscal responsibility. 

• Fiscal Responsibility: The budget aims to reduce the fiscal deficit to 3.8% of GDP in 2025, with a further goal of bringing it down to 3% by 2026.
• Revenue Growth: Revenue is projected to grow by 5.5% to RM339.7 billion in 2025, primarily due to stronger direct tax collection and the expansion of Sales and Service Tax (SST)​
• Debt Management: The government will focus on reducing its debt-to-GDP ratio, aiming to lower it from the current 63.1% of GDP in June 2024.

Operating Expenditure (RM335 billion)

Operating Expenditure (OE) represents the largest portion of the budget, covering the daily functioning of the government, salaries of civil servants, and other recurring expenses. Key components of OE include:

Emoluments (Public Servants' Salaries): A substantial portion of the OE is allocated towards paying the salaries of government employees.

Pensions and Retirement Benefits: These include payouts to retired government employees, a significant portion of the recurring expenditure.

Debt Servicing: As Malaysia continues to manage its national debt (standing at RM1.5 trillion, approximately 80% of GDP), a notable allocation of OE is dedicated to interest payments on national debt​(ey-take5-budget2025-18o…).

Subsidies and Assistance: RM58.2 billion has been allocated for subsidies, assistance, and incentives, with a special focus on targeted subsidies for those in need. Key areas include:

• Electricity and Fuel Subsidies: Reforming broad-based subsidies and focusing on targeted groups to reduce fiscal leakage​.
• Support for Small Traders and Farmers: Initiatives to provide financial aid, especially in agriculture and rural sectors​.

Development Expenditure 

Development Expenditure (DE) focuses on projects that stimulate long-term economic growth and improve infrastructure. The 2025 allocation marks a continued commitment to public infrastructure and innovation with strategic investments across various sectors:

Infrastructure Projects

• Flood Mitigation: RM3 billion is allocated to flood mitigation projects to address Malaysia’s vulnerability to natural disasters.
• Transportation: Key projects include the Penang Light Rail Transit (LRT) and the Kulim Hi-Tech Park Expansion. Additionally, RM253 million is allocated for the expansion of Tawau and Miri airports​.
• State-Specific Developments: The budget allocates significant funds for regional development, including RM6.7 billion for Sarawak and RM5.9 billion for Sabah. This includes improving water supply, transportation, and energy infrastructure.
• High-Impact Projects: Kuala Lumpur-Singapore High-Speed Rail (HSR), Kulim Hi-Tech Park Expansion, Kerian Integrated Green Industrial Park (KIGIP)

National Energy Transition Roadmap (NETR)

• RM305.9 million is allocated for initiatives supporting Malaysia’s goal of achieving net-zero carbon emissions by 2050. 
• Projects include the Kenyir Hybrid Hydro-Floating Solar Farm and Large-Scale Solar initiatives.

Innovation and Digitalization

With a focus on supporting start-ups, fostering AI development, and promoting digital transformation across industries, the government has introduced several initiatives to encourage public-private collaboration and investments in cutting-edge technologies.

NFOF and Start-Ups: RM1 billion will be invested over four years in the National Fund of Funds (NFOF), venture capital, and start-ups to drive innovation in sectors like AI, semiconductors, and green technology.

National AI Office: RM10 million is allocated to create the National Artificial Intelligence Office, which will lead efforts in boosting Malaysia’s digital economy and AI adoption.

Digital Grants for MSMEs: The government will offer RM50 million in matching digital grants to help MSMEs adopt digital technologies, promoting innovation and operational efficiency.

AI Education: RM50 million will be invested in AI education programs across research universities to equip the workforce with essential future-ready skills.

ASEAN AI Safety Network: A new ASEAN AI Safety Network will focus on regional collaboration to promote the safe and responsible use of AI and address the potential risks of AI technologies.

Private Investments (PIKAS 2030): The Public-Private Partnership Master Plan (PIKAS 2030) will bring in RM78 billion in private investments, driving digital growth and generating 900,000 new jobs by 2030.

Contingency Reserve (RM2 billion)

A contingency reserve of RM2 billion has been set aside to address unforeseen expenses and urgent developments during the fiscal year. This reserve ensures the government maintains flexibility to respond to emergencies such as natural disasters or sudden economic shifts without destabilizing the budget.

Social Sector Prioritization

The budget places a significant emphasis on improving the social sector, with notable allocations towards health, education, and social welfare. This reflects the government’s priority to improve the rakyat’s quality of life and enhance public services:

• Education:  The largest allocation in the social sector goes to education, underscoring the government’s commitment to improving educational infrastructure and resources. It aligns with SDG 4 (Quality Education) and supports the expansion of educational facilities across the country​.
• Healthcare: RM1 billion for the Sarawak Cancer Centre and upgrades to hospitals across Malaysia​. Enhanced healthcare access through targeted subsidies, particularly for marginalized communities.
• Social Welfare: Programs like Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) are designed to ease the cost of living for the rakyat, particularly benefiting 5.4 million low-income households (B40 group)

Revenue Sources in Malaysia Budget 2025

The 2025 Budget introduces a range of strategic revenue measures aimed at expanding Malaysia’s fiscal base, enhancing tax compliance, and promoting sustainable growth.  The revenue strategies seek to balance immediate fiscal needs with long-term financial sustainability.

Expanding the Sales and Service Tax (SST)

Effective from May 2025, the SST will be broadened to include additional services and non-essential goods. The expansion is anticipated to generate RM1.5 billion in additional revenue annually.

• Broadening the Scope: New categories of taxable services, particularly in the B2B (business-to-business) sector, will be included under the SST regime. 
• Non-Essential Goods: Imported premium and non-essential goods will be subject to higher tax rates, helping to increase indirect tax collection without adversely affecting the majority of the population.

Dividend Tax on High-Income Individuals

For the first time, Malaysia will introduce a dividend tax on individuals earning substantial dividend income. Starting in 2025, individuals who earn dividends exceeding RM100,000 annually will be taxed at a rate of 2% on the excess amount.

• Scope and Impact: This tax measure applies to both resident and non-resident individuals. The goal is to ensure that wealthier individuals contribute their fair share to the national revenue, particularly from passive income sources like dividends.
• Exemptions: Dividend income from certain sources, such as foreign entities, companies with pioneer status, or shipping companies, will remain exempt from this tax​.

Carbon Tax and Green Initiatives

As part of Malaysia’s commitment to achieving net-zero emissions by 2050, the government has announced the introduction of a carbon tax. Initially focused on high-emission industries, such as iron, steel, and energy sectors, the carbon tax will come into effect in 2026.

Revenue Allocation: Proceeds from the carbon tax will be earmarked for green research and technology programs aimed at accelerating Malaysia’s transition to a sustainable economy​.

Targeted Subsidy Rationalization

A significant element of the revenue strategy is the targeted subsidy rationalization. The government is phasing out blanket subsidies and moving towards a more focused approach, where only those in need will receive assistance.

• RON95 Fuel Subsidy: Beginning in mid-2025, the government will rationalize the RON95 petrol subsidy. This move is expected to reduce fiscal leakage by ensuring that 85% of the population will still benefit, while wealthier individuals who use more fuel will pay market prices​.
• Diesel Subsidy: Similarly, the diesel subsidy will be targeted towards industries and lower-income groups, potentially saving the government billions annually.

 Tax on High Electricity Consumers

In 2025, the government will implement a new tiered system for electricity subsidies, where users consuming more than a defined threshold will face higher tariffs. This aims to promote energy efficiency and reduce unnecessary consumption.

• Revenue Impact: This measure is expected to save RM4 billion in electricity subsidies by targeting wealthier households and large businesses

Excise Duty on Sugar-Sweetened Beverages

Starting in January 2025, the excise duty on sugar-sweetened beverages will be increased by RM0.40 per litre, with the goal of both raising revenue and encouraging healthier consumption habits​

Personal Tax Reliefs in Malaysia's Budget 2025

Budget 2025 introduces several updates to personal  income tax reliefs aimed at easing the financial burden on individuals and supporting key areas such as healthcare, homeownership, and retirement planning. Here’s a simplified overview of the main changes:

Medical Treatment and Health Reliefs

• Claim up to RM10,000 for serious illnesses, fertility treatments, and vaccinations.
• Expanded relief to cover self-testing medical devices (e.g., glucometers, blood pressure monitors).
• New relief for mental health check-ups and consultations.
• Additional RM1,000 relief for disease detection exams like mammograms and pap smears.

Income Tax Relief for Disabled Persons

• Disabled individuals can claim RM7,000 (previously RM6,000).
• Relief for supporting a disabled spouse increased to RM6,000.
• Relief for disabled children raised to RM8,000.

Sports, Health, and Elderly Care Relief

• Claim up to RM1,000 for sports equipment and activities, including care for parents and grandparents.
• Expenses for elderly care (e.g., medical treatments, vaccinations) also eligible for relief.

Housing Loan Interest Relief for First-Time Home Buyers

• Claim up to RM7,000 annually for homes priced below RM500,000.
• Up to RM5,000 relief for homes priced between RM500,000 and RM750,000.
• Applies to the first three years of loan interest payments.

Education and Medical Insurance Relief

The government has increased the relief on premiums paid for education and medical insurance from RM3,000 to RM4,000. 

Private Retirement Schemes (PRS) Relief

The tax relief for contributions to Private Retirement Schemes (PRS) has been extended, allowing individuals to claim RM3,000 until the Year of Assessment 2030. 

Tax Exemption on Sports Prizes

To promote participation in sports, cash prizes received by athletes through the Victory Prize Scheme will be exempt from income tax.

Business Taxation and Incentives in Malaysia's Budget 2025

Malaysia’s Budget 2025 introduces several business taxation changes and incentives aimed at driving growth, promoting investments, and supporting local industries

Incentives for Digital Transformation, e-Invoicing and Innovation

E-Invoicing incentives: Companies investing in ICT equipment, software, and consulting services for e-Invoicing will receive accelerated capital allowances, allowing full write-off over two years.

Smart logistics incentives: Investment in Smart Logistics Complexes that use AI and IoT technologies will qualify for a 60% Investment Tax Allowance over five years.

Automation and Green Technology Tax Incentives

Automation: Businesses in manufacturing, services, agriculture, and commodities that invest in automation will benefit from accelerated capital allowances, enabling them to fully claim capital expenditures in one year.

Carbon capture incentives: Companies involved in Carbon Capture, Utilization, and Storage (CCUS) activities will receive investment tax allowances or income tax exemptions based on the new National Investment Incentive Framework.

Support for Small and Medium Enterprises (SMEs)

Microfinancing: SMEs will have access to RM1.4 billion in microfinancing under Bank Simpanan Nasional (BSN) and additional financing through TEKUN Nasional.

Tax deductions for equipment donations: Companies donating new machinery or equipment to public vocational institutions will receive full tax deductions on these donations.

Support for Bumiputera and women-owned businesses: RM470 million has been allocated to support women-owned SMEs, and specific financing schemes will support Bumiputera SMEs.

Tax Incentives for Employers

Flexible Work Arrangements (FWA): Employers implementing FWA will be eligible for a 50% tax deduction on related expenses, capped at RM500,000.

Hiring women returning to work: Employers who hire women returning to work after a career break of at least two years will receive a 50% tax deduction on employment expenses for 12 months.

Caregiving leave: Employers providing up to 12 months of paid caregiving leave for employees caring for children or disabled family members will receive a 50% tax deduction.

Incentives for Strategic Industries

Semiconductor industry: Tax incentives are available for companies investing in advanced integrated circuit design, positioning Malaysia as a regional hub for high-value semiconductor activities.

Green energy: Companies involved in renewable energy projects will continue benefiting from tax exemptions as part of the National Energy Transition Roadmap.

Social Welfare and Minimum Wage

The Budget 2025 Malaysia emphasizes improving the livelihood of citizens, particularly in the lower-income groups, especially the B40 and M40 income groups, through targeted social welfare programs and enhancements to the minimum wage. 

Social Welfare Initiatives

Sumbangan Tunai Rahmah (STR): Provides cash transfers to 5.4 million recipients, particularly B40 households. Families can receive up to RM2,000 annually.

Sumbangan Asas Rahmah (SARA): Offers monthly subsidies of up to RM100 to low-income families to ease the cost of essential living needs.

SejaTi MADANI Initiative: RM1 billion allocated to empower rural and urban poor communities, with special attention to Orang Asli and marginalized groups.

Program Perumahan Rakyat (PPR): RM100 million allocated to improve living conditions and create job opportunities in PPR communities.

Enhancing Minimum Wage

The minimum wage will rise from RM1,500 to RM1,700, ensuring workers can better manage living costs. Small businesses are given a six-month grace period to implement the new wage, allowing them time to adjust to increased costs.

Malaysia Budget 2025 PDF: Government Sources

Download the government released pdfs for the budget Malays 2025 from the links below

Conclusion

Budget 2025 Malaysia presents a forward-thinking plan that is not only  digital economy driven but also deeply committed to the well-being of the rakyat. With a focus on personal tax reliefs, targeted welfare programs, and investments in innovation and digitalization, the Malaysia budget 20254 is designed to foster economic growth while ensuring inclusivity. 

If well-implemented, the 2025 budget fulfils all the key objectives of the Ekonomi MADANI framework, supporting fiscal responsibility while empowering individuals and businesses.