Malaysia’s Ambitious 2025 Budget: Economic Growth, Tax Reforms, and Social Advancements

Summary:

Malaysia’s Prime Minister Datuk Seri Anwar Ibrahim presented the 2025 Budget on October 18, 2024, focusing on economic growth, public accountability, and social welfare. The budget, valued at RM421 billion, is the highest ever allocated, with RM335 billion for operating expenditure and RM86 billion for developmental expenditure. Key announcements include the expansion of tax schemes, rationalization of subsidies, and developmental measures for Sabah and Sarawak.

Key Announcements:

Expansion of Tax Schemes: The Sales Tax and Service Tax (SST) will be improved to be more progressive, with collections used to improve cash assistance. Basic food items are exempt from the Sales Tax, while non-essential goods will be taxed. A 2% tax on dividend income exceeding RM100,000 will be applicable from 2025.

Rationalization of Subsidies: The subsidy rationalization program for RON95 petrol will be implemented by mid-2025, affecting the top 15% of earners. Electricity subsidies will continue for 85% of users, and water tariffs will be adjusted. Education subsidies will be reduced for the top 15% income group.

Developmental Measures for Sabah and Sarawak: RM120 billion is allocated for development, with RM6.7 billion for Sabah and RM5.9 billion for Sarawak. The Special Grant for Sarawak and Sabah will increase to RM600 million.

Public-Private Partnership (PPP) Projects: Investment in the PPP Master Plan is expected to increase private investment by RM78 billion and generate 900,000 jobs by 2030. Key projects include hospitals, expressways, and rice crop projects.

Enhanced Accountability: RM360 million is allocated to the Malaysian Anti-Corruption Commission (MACC) for investigations. The National Audit Department will receive RM200 million to review public fund management. A Legal Reform Team will update outdated laws.

The budget also includes initiatives for public accountability, combating fraud, supporting high-value activities, and establishing Malaysia as a talent hub. Financial assistance and tax relief are provided for civil servants, caregivers, and childcare. The minimum wage will increase to RM1,700, and individual income tax updates are announced.

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Key Points:

Key Point 1: Expansion of Tax Schemes

The Sales Tax and Service Tax (SST) will be made more progressive, with collections used to improve cash assistance.

Basic food items are exempt from the Sales Tax, while non-essential goods will be taxed.

A 2% tax on dividend income exceeding RM100,000 will be applicable from 2025.

Key Point 2: Rationalization of Subsidies

The subsidy rationalization program for RON95 petrol will be implemented by mid-2025, affecting the top 15% of earners.

Electricity subsidies will continue for 85% of users, and water tariffs will be adjusted.

Education subsidies will be reduced for the top 15% income group.

Key Point 3: Developmental Measures for Sabah and Sarawak

RM120 billion is allocated for development, with RM6.7 billion for Sabah and RM5.9 billion for Sarawak.

The Special Grant for Sarawak and Sabah will increase to RM600 million.

Funds are allocated for infrastructure projects such as airports and cancer centers.

Key Point 4: Public-Private Partnership (PPP) Projects

Investment in the PPP Master Plan is expected to increase private investment by RM78 billion and generate 900,000 jobs by 2030.

Key projects include hospitals, expressways, and rice crop projects.

Key Point 5: Enhanced Accountability

RM360 million is allocated to the Malaysian Anti-Corruption Commission (MACC) for investigations.

The National Audit Department will receive RM200 million to review public fund management.

A Legal Reform Team will update outdated laws.

Resources:

Resource 1: Malaysian Anti-Corruption Commission (MACC)
The MACC is a government agency in Malaysia tasked with investigating and combating corruption. In the 2025 Budget, RM360 million is allocated to the MACC to enhance its capabilities in conducting investigations and taking firm action against corruption. This allocation is part of the government’s commitment to enhancing accountability and transparency in public administration.

Resource 2: Public-Private Partnership Master Plan (PIKAS) 2030
The PIKAS 2030 is a strategic initiative aimed at boosting private investment and job creation through public-private partnerships. The plan is expected to increase private investment by RM78 billion and generate 900,000 jobs by 2030. Key projects under this plan include infrastructure developments such as hospitals and expressways, which are crucial for Malaysia’s economic growth and development.

Resource 3: Khazanah Nasional Berhad
Khazanah Nasional Berhad is the sovereign wealth fund of the Government of Malaysia. In the 2025 Budget, Khazanah is involved in establishing the National Fund-of-Funds (NFOF) to support venture capital fund managers investing in start-ups. Additionally, Khazanah will provide RM1 billion to support the local semiconductor industry, highlighting its role in fostering innovation and economic diversification in Malaysia.

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Next Steps:

1. **Monitor the implementation of the subsidy rationalization program** to assess its impact on different income groups and ensure that the majority of the population continues to benefit from subsidies.

2. **Engage with public-private partnership projects** to explore opportunities for collaboration and investment, particularly in infrastructure and high-value sectors.

3. **Stay informed about updates to tax schemes and regulations** to ensure compliance and optimize financial planning for businesses and individuals.