Malaysia’s Budget 2025 is set to be presented on 18 October 2024. This year’s budget is expected to emphasise fiscal discipline, aiming to reduce the fiscal deficit while continuing to prioritise the well-being of Malaysians.
With Malaysia’s economy showing positive growth, reflected in a rise in GDP and the Ringgit becoming one of the best performing currencies this year, the initiatives outlined in the budget are expected to further boost economic development.
Now, the big questions on everyone’s mind: Will the government finally take steps toward subsidy cuts for RON95 petrol? Are we getting more clarity on major infrastructure projects like MRT3? Will High Value Goods Tax (HVGT) be resurfaced?
With Budget 2025 right around the corner, here’s a take on 4 things that Malaysians should look out for – and the potential market shake-ups its effects could have.
#1 Subsidy Rationalisation for RON95 Petrol?
Following the removal of diesel subsidies on 1 June 2024, the government have shown its resolve to tackle the RM14.3 billion subsidy bill. Despite a 56% price hike in Peninsular Malaysia, the cost of diesel prices is still the second-lowest in Southeast Asia, behind Brunei.
One potentially hot topic in Budget 2025 is a possibility that the government may extend its subsidy rationalisation to RON95 petrol. With a plan to take a gradual approach in subsidy rationalisation already in the motion, one of the main aims for the government will be to avoid any drastic price spikes.
Building on the success of the BUDI MADANI initiative, the government may introduce a targeted subsidy plan for the M40 and B40 groups. This way, the burden is balanced, ensuring that support continues for those who need it most while easing the transition.
Read Also: Median Household Income By State: How Much Do Malaysian Households Earn
#2 Development Expenditure To Remain Supportive For Economic Growth
The Malaysian government is gearing up to invest around RM400 billion in development projects between 2021 and 2025, with an additional RM15 billion announced during the 12th Plan Mid-Term Review.
So far, about RM232 billion has been spent, and there’s RM95 billion lined up for 2024, with expectations for a similar allocation in 2025 to reach a total of RM415 billion.
This will kick off several exciting infrastructure projects in 2025, including the Pan Borneo Highway Sabah Phase 1B, Northern Coastal Highway in Sarawak, and both the Penang and Johor LRT systems.
Transportation may get a bigger slice of budget pie, especially with land acquisition for the MRT3 project gearing up after public inspections wrap up. However, with the hefty price tag of around RM30 billion, it may not be a surprise to see construction for MRT3 pushed to 2026.
#3 Global Minimum Tax In 2025
The Malaysian government is gearing up to roll out a global minimum tax in 2025, following the OECD/G20 Inclusive Framework. This initiative aims to ensure that multinational companies (MNCs) pay at least a 15% tax rate, a move designed to curb profit shifting and reduce tax avoidance practices that have become increasingly prevalent.
While this could potentially boost government revenue and enhance fiscal health in the short-term, it raises concerns about Malaysia’s competitiveness in attracting foreign direct investment (FDI) going forward.
To address these concerns, the government is likely to focus on enhancing labour productivity and workforce skills. By investing in these areas, Malaysia can maintain its attractiveness to investors, ensuring that the business environment remains favourable.
This approach will not only support economic growth, but also help to sustain wage growth for workers. Ultimately, a balanced strategy that strengthens tax compliance while promoting a competitive investment climate will be crucial for Malaysia’s long-term economic success.
#4 High Value Goods Tax To Potentially Resurface?
More clarity on the HVGT is anticipated in Budget 2025, especially after its indefinite postponement from the previous budget. While the exact details like tax rates and items affected remain unclear, there’s concern that it could have an outsized impact on certain industries, particularly luxury retail and entry-level car markets. High-income earners may be in a better position to combat such a tax, but middle- and high-income consumers could feel the pinch.
The HVGT could have a negative impact on REITs that are heavily invested in high-end retail malls like KLCCSS and Pavilion REIT. Pavilion KL, with its nearly 50 luxury stores among over 700 tenants. A decline in demand for luxury goods due to this tax may have an outsized impact on these REITs.
More To Come?
Apart from the potential questions raised above, there’s also plenty to look forward to in Budget 2025. With a positive economic backdrop in Malaysia, thanks to US Fed policies, business and investor confidence are expected to rise, especially with a stronger ringgit in the mix.
This combination is likely to spark both domestic and foreign investment, likely spurring a favourable environment for stock investments as well.
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