KUALA LUMPUR (Oct 5): Malaysia could widen its corporate tax base by reviewing special and double deductions that have been in place for two to three decades, and remove deductions that no longer serve their original purpose, said CIMB Investment Bank.

CIMB IB said, citing KPMG senior adviser on tax policy Dr Verrinderjeet Singh during a discussion, that the removal of selected deductions could lead to the government collecting more revenue while creating room for a lower headline corporate tax rate.

“His [Verrinderjeet] proposal is selective: investment incentives remain important for attracting businesses, but their benefits need closer scrutiny. He links Malaysia’s shift towards outcome-based incentives to its response to Global Minimum Tax,” said CIMB IB.

It added, “Their effectiveness will depend on monitoring whether investors deliver the intended economic benefits”.

Malaysia’s headline corporate income tax rate is currently 24%, but the amount of tax companies ultimately pay is also affected by deductions, exemptions and investment incentives.

On major tax changes, CIMB IB said Malaysia is unlikely to introduce new tax changes in Budget 2027, with stronger collection from existing taxes and a wider tax base offering the main scope for raising government revenue.

The government is expected to focus on improving tax collection, particularly by bringing more businesses into the tax net and identifying income that is not fully reported.

Smaller businesses are likely to offer more room for additional collections, as larger companies are already more visible to the tax authorities, said CIMB IB.

“His central message was that stronger collection and targeted refinements to existing taxes offer the main near-term revenue opportunities. Against a continued focus on cost-of-living support and the social agenda, he expects few substantial tax changes in the coming budget,” said CIMB IB.

E-invoicing could help identify unreported taxable activity, although smaller businesses face additional compliance and technology costs. CIMB IB said Veerinderjeet expects participation to broaden as economic conditions improve.

CIMB IB also sees scope for greater use of data analytics by the Inland Revenue Board (IRB) and Customs to identify businesses and income outside the existing tax net.

On indirect taxes, CIMB IB said Veerinderjeet does not expect the goods and services tax (GST) to return in Budget 2027. Instead, the focus is likely to remain on improving the existing sales and service tax (SST).

SST is estimated to cover about 78% to 80% of goods and services, approaching the breadth of the former GST regime. CIMB said broader exemptions for business inputs could reduce the cascading of tax costs through supply chains, although this would come at the cost of lower tax receipts.

Veerinderjeet also does not expect an increase in the 2% dividend tax on annual dividend income above RM100,000, an extension of capital gains tax to listed shares or a further increase in the 30% top personal income tax rate in Budget 2027, according to the note.

“Dr Veerinderjeet argues that the government should ‘sweat our assets’ through better collection, supported by greater investment in tax agency analytics. These efforts can deliver incremental gains, while broader personal, corporate and indirect tax bases offer scope to lift tax-to-GDP towards 15% over time,” said CIMB IB economists.

Veerinderjeet estimates only 15% to 16% of the workforce currently pays personal income tax, with low wages limiting the number of taxpayers. Higher wages would therefore be important in expanding the personal income tax base.

Budget 2027 is expected to be tabled in Parliament on Oct 9.