Malaysia’s Budget 2027, announced by Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim on Oct 9, contains several welcome tax measures aimed at strengthening compliance, encouraging technological adoption and accelerating the transition towards a greener economy. However, while the budget offers practical incentives for businesses and individuals, it also misses an important opportunity to undertake a more fundamental reform of Malaysia’s tax framework: simplifying our outdated and unnecessarily complex stamp duty legislation.

As a tax lawyer and a taxpayer, I think a good budget should do more than provide immediate financial relief. It should establish a tax environment that encourages responsible business conduct, rewards productive investment and makes compliance simpler, clearer and more predictable. Budget 2027 makes progress in some of these areas, but further reforms are needed to ensure that its ambitions translate into lasting improvements for businesses and the wider economy.

One of the more significant measures is the government’s proposal to restrict tax deductions for wage expenditure where companies, other than micro, small and medium enterprises (MSMEs), fail to pay wages through bank accounts permitted under the Employment Act 1955.

The policy objective is commendable. By linking the deductibility of wage expenses to compliant payment channels, the Government seeks to discourage the employment of undocumented foreign workers and improve the transparency of employment practices. Formal banking channels create an auditable record of wage payments, making it more difficult for employers to conceal their workforce or make unrecorded payments.

This is a sensible example of using tax policy to reinforce existing employment and immigration controls. Businesses should not be able to obtain tax benefits from wage expenditure that cannot be properly substantiated, particularly where opaque payment arrangements may facilitate unlawful employment practices.

However, the decision to limit this requirement to companies outside the MSME category is difficult to justify as a matter of principle.

If the objective is to curb undocumented employment, the integrity of wage payments should not depend on the size of the employer. Undocumented labour can be employed by businesses of every size, and the need for transparent payroll practices is equally relevant across the economy.

The government should therefore consider extending the requirement to all businesses, while providing a reasonable transition period and proportionate compliance assistance for smaller enterprises. Smaller employers may need additional time to establish payroll systems, open appropriate bank accounts or adapt existing administrative processes. These practical challenges can be addressed without exempting an entire category of businesses from the underlying principle.

Clear guidance will also be essential. The legislation or accompanying administrative guidance should specify the qualifying payment arrangements, the documentation required and the consequences of non-compliance. It should avoid penalising employers for technical or administrative failures where wages were genuinely paid and the employment relationship was lawful.

Ultimately, a universal and clearly administered rule would create a more consistent standard of accountability, improve the audit trail for employment expenditure and better support the government’s stated objective.

The budget’s support for artificial intelligence (AI) is another positive development. In particular, the expansion of individual lifestyle tax relief to include AI software subscriptions recognises that AI is becoming an increasingly important tool for learning, productivity and professional development.

AI is no longer confined to technology companies. It is increasingly used by lawyers, accountants, manufacturers, retailers, educators and service providers to analyse information, automate routine work, improve customer service and make better-informed decisions. For professionals and smaller businesses, access to reliable AI tools can improve productivity without requiring the substantial investment traditionally associated with sophisticated technology systems.

Recognising AI subscriptions within the tax relief framework is therefore timely. It may encourage individuals to acquire relevant digital skills and become more familiar with tools that will increasingly shape the workplace.

Nevertheless, the measure should be viewed as a starting point rather than a comprehensive AI  doption policy. Individual relief addresses only part of the challenge. Businesses must also invest in employee training, software integration, cybersecurity, data governance and the redesign of existing processes before AI can deliver meaningful productivity gains.

The government should consider a broader framework of tax support for qualifying business expenditure on AI implementation. Depending on the applicable rules, this could include subscriptions to business AI platforms, implementation and integration costs, employee training, and expenditure on secure systems that enable responsible deployment. Clear distinctions would be needed between deductible operating expenses and capital expenditure, with appropriate rules to prevent double claims.

Such measures should not indiscriminately subsidise every product marketed as AI. Eligibility criteria should be sufficiently clear to distinguish genuine business adoption from ordinary personal consumption or expenditure with little demonstrable connection to productive activity.

The wider objective should be to make AI adoption accessible to Malaysian businesses of different sizes, particularly those that lack the resources of larger corporations. With appropriate safeguards, targeted tax deductions and capital allowance provisions could help narrow the technology gap, improve competitiveness and support Malaysia’s ambition to move  towards higher-value economic activities.

The challenge is to ensure that AI becomes a practical productivity tool throughout the economy, rather than a technology available principally to organisations with substantial  financial resources.

The extension of green tax incentives until Dec 31, 2030 is also welcome. Companies undertaking qualifying green technology and sustainability projects, investing in electric vehicle (EV) charging stations, or purchasing green technology assets for their own use will be eligible for investment tax allowances (ITAs) of up to 100%, subject to the applicable conditions.

The extension provides greater certainty for businesses planning investments that may involve substantial upfront capital expenditure and longer payback periods. Renewable energy installations, energy-efficient equipment, sustainable industrial processes and EV charging infrastructure can require significant initial investment, even where the long-term commercial and environmental benefits are compelling.

An ITA can improve the economics of these investments by allowing qualifying capital expenditure to be set against income tax liabilities in accordance with the applicable rules. This can help businesses justify projects that might otherwise be postponed because of cost considerations.

The inclusion of EV charging infrastructure is particularly important. As electric mobility expands, charging availability will be essential to encouraging adoption by businesses and consumers. Extending incentives to companies investing in charging stations can help develop the supporting infrastructure needed for a broader transition to cleaner transport.

Similarly, incentives for green assets acquired for a company’s own consumption recognise that sustainability is not limited to businesses selling green technology. A manufacturer installing energy-efficient equipment or a commercial operator investing in qualifying energy saving systems can contribute directly to reducing energy consumption and emissions.

The extension to 2030 offers a useful investment horizon, but implementation will determine its effectiveness. The authorities should publish clear eligibility criteria, explain the interaction between ITAs and other tax incentives, and provide timely guidance on the application process. Businesses need certainty when preparing capital expenditure budgets and assessing the after tax returns of proposed projects.

The government should also monitor whether the incentives generate additional green investment rather than simply subsidising projects that would have proceeded anyway.  Ultimately, the policy should deliver measurable environmental benefits alongside stronger domestic investment and industrial competitiveness.

Despite these welcome measures, Budget 2027 has missed an opportunity to address an area of tax law that has long required comprehensive reform: stamp duty.

Malaysia’s stamp duty framework remains complex, with numerous categories of instruments, technical distinctions and archaic legal language that can make it difficult for businesses and individuals to determine their obligations. Transactions that are commercially straightforward may require careful legal analysis to establish whether an instrument is chargeable, which charging provision applies and how the duty should be calculated. Especially now as Malaysia has implemented the self-assessment system.

This complexity and ambiguity in law create uncertainty, increase professional and administrative costs, and can impact transactions. It is particularly challenging when commercial arrangements evolve faster than legislation drafted around traditional forms of documentation.

The government has announced several targeted stamp duty concessions, including relief relating to certain financing arrangements and exemptions for specified transactions. These measures may be useful, but these selected exemptions do not address the underlying structural problem.

Malaysia should undertake a comprehensive review of the Stamp Act 1949, with the objective of reducing the number of unnecessary categories of chargeable instruments, consolidating overlapping provisions and making the law easier to understand and administer.

Singapore provides a useful point of comparison as both countries inherited similar stamp duty concepts from British law. However, as both economies evolved, Singapore undertook legislative modernisation, including revisions to statutory language and improvements in the accessibility of its laws. Its experience offers Malaysia a valuable benchmark for reform.

Malaysia should examine how charging provisions, especially simplifying the categories of instruments, streamlining exemptions and administrative guidance can be expressed more clearly. Under self-assessment, taxpayers are responsible for determining whether an instrument is chargeable, calculating the duty payable and ensuring compliance. It is unreasonable to place this responsibility on taxpayers without ensuring that the underlying legislation is clear, accessible and fit for modern commercial transactions.

A modernised Malaysian framework should identify chargeable instruments in a more systematic manner, reduce ambiguity over the application of duty to contemporary commercial arrangements, and provide clearer rules for electronic documentation and transactions involving multiple instruments. It should also make exemptions and reliefs easier to locate and apply.

The government should consult the legal profession, businesses, financial institutions and relevant authorities before introducing a reform bill. A review of this nature would help distinguish provisions that serve a genuine revenue purpose from those that impose disproportionate compliance costs.

Stamp duty reform may not attract the same attention as a reduction in income tax but it matters greatly to the ease of doing business. A simpler framework could reduce disputes, improve certainty and lower transaction costs without necessarily compromising legitimate revenue objectives.

Budget 2027 contains several sensible measures. Linking wage deductions to compliant payment channels supports employment transparency, AI-related tax relief acknowledges the changing nature of work, and the extension of green incentives provides a longer horizon for sustainable investment.

The next step is to ensure that these measures are implemented through clear legislation and practical administrative guidance. In particular, the government should reconsider why the wage-payment requirement does not apply to all businesses and develop a broader, carefully targeted framework to encourage productive AI adoption.

Above all, Malaysia should not overlook the importance of simplifying its tax laws. Tax policy is most effective when taxpayers can understand their obligations, comply without disproportionate expense and make commercial decisions with confidence.

A modern tax system must do more than collect revenue and grant incentives. It must also be  lear, consistent and fit for the economy Malaysia wants to build. Comprehensive stamp duty reform would be a meaningful next step towards that objective.

S Saravana Kumar is a partner with the law firm Rosli Dahlan Saravana Partnership (RDS).