Budget 2027: Every Tax Change in One Read, and the Payroll Rule Companies Cannot Ignore

Budget 2027, tabled on 9 October 2026, proposes a broad set of tax measures for individuals, SMEs and larger companies. Most of them reduce the tax burden, but one new condition on salary deductions will require companies other than SMEs to look closely at how they pay their staff.

For individuals, the personal relief rises from RM9,000 to RM12,000, its first revision since 2010. The rate on chargeable income between RM70,000 and RM100,000 falls to 18%, and the band between RM100,000 and RM150,000 falls to 24%, while income above RM1 million is adjusted to 30%. Several reliefs are also widened, with care of parents and grandparents now covering all care expenses, education fees covering children's tuition, and the lifestyle relief extending to AI subscriptions.

SMEs receive a one percentage point cut, with the first RM150,000 of chargeable income taxed at 14% and the band from RM150,000 to RM600,000 at 16%. The capital allowance limit for each small value asset rises to RM3,000, and the Accelerated Capital Allowance for local machinery and ICT is extended to 31 December 2030. Manufacturers will also be able to claim back sales tax on machinery, spare parts and equipment bought from local traders and distributors.

The measure with the widest practical reach is the new salary condition. Companies other than SMEs may claim a tax deduction for salary only if it is paid through a bank account, using the channels permitted under the Employment Act 1955. Other expenses are not affected. Any salary still paid in cash would put that deduction at risk, so payroll arrangements are worth reviewing early.

On indirect tax, service tax on elderly care services drops from 8% to 6% from 1 January 2027, with care fees up to RM96,000 a year fully exempt. First home buyers enjoy a full stamp duty exemption on the loan agreement and instrument of transfer for homes up to RM500,000, while homes up to RM750,000 receive a full exemption on the first RM500,000 and 50% off the balance, for agreements executed from 2027 to 2030.

These measures are described in the Budget as proposals, so the final conditions will follow what the government announces. The full list of tax measures, including stamp duty, special incentives and payroll changes, is set out in the PDF at this link: https://drive.google.com/file/d/1X8Qbk8yabT9lOO5enRgqWo1WLPDIG1fx/view?usp=sharing

If you wish to focus on running and growing your business, our CFO advisory team can take care of your accounting, payroll, tax planning, e-stamping, corporate secretarial and compliance matters for you. Feel free to WhatsApp us at 010-246 2151.