KUALA LUMPUR (Sept 18): Budget 2027 could see further sales and service tax (SST) exemptions to reduce costs embedded in businesses, alongside possible personal income tax relief for middle-income taxpayers, according to CIMB Securities.

CIMB Securities said there is scope for the government to broaden SST exemptions for production-related inputs, as businesses continue to face elevated energy, logistics and other operating costs.

It expects further SST relief to reduce government collections by about RM1 billion, although underlying growth should still lift SST revenue by 5.5% to RM72 billion in 2027.

Unlike the goods and services tax (GST), the SST does not have a general input tax credit mechanism, meaning businesses may pay tax on inputs without being able to deduct it against tax charged on their own sales. This can result in tax costs being embedded through the supply chain, CIMB noted.

CIMB said in a note extending selected exemptions is likely to be the more immediate option in Budget 2027, while a broader input tax credit mechanism could be introduced from 2028 or later because of the additional administrative and refund framework required.

At the same time, CIMB sees room for targeted personal income tax relief for middle-income taxpayers, particularly households facing higher living costs but receiving less direct cash assistance.

As an illustration, the research house said tax rates for chargeable income of RM50,001 to RM70,000 and RM70,001 to RM100,000 could each be reduced by one percentage point to 10% and 18% respectively.

The current 25% tax bracket could also be split, with a 24% rate applied to chargeable income between RM100,001 and RM150,000.

Such a package could provide annual tax savings of RM200 for those with RM70,000 in chargeable income, RM500 at RM100,000 and as much as RM1,000 for those earning RM150,000 and above, CIMB estimated.

It said the illustrative package would cost the government about RM800 million annually.

More broadly, CIMB expects Budget 2027 to continue providing household support while maintaining fiscal consolidation, forecasting the fiscal deficit to narrow slightly to 3.4% of gross domestic product in 2027 from an estimated 3.5% in 2026.

The research house also expects cash assistance under Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah to increase by RM2 billion to RM17 billion, supported partly by lower fuel subsidy spending.

CIMB forecasts petrol and diesel subsidies to fall to RM32 billion in 2027 from RM41 billion, creating room for higher household assistance and development spending while keeping the government on its fiscal consolidation path.

Budget 2027, the fifth Madani Budget and the second under the 13th Malaysia Plan, is scheduled to be tabled in Parliament on Oct 9. The Ministry of Finance has said the budget will focus on areas including cost-of-living pressures, business competitiveness and productivity, while maintaining fiscal discipline.