KUALA LUMPUR (Oct 18): The proposed introduction of the carbon tax in 2026 on the steel, iron and energy industries addresses environmental concerns, collectively creating a more robust and equitable tax system and supporting long-term economic and environmental goals.

PricewaterhouseCoopers (PwC) Malaysia tax leader Steve Chia said the carbon tax can also be seen as Malaysia’s response to the European Union’s carbon border adjustment mechanism.

“Overall, Budget 2025 is forward-thinking, riding on the back of positive economic sentiments, because of its focus on progressive tax measures.

“Nevertheless, certain measures such as the expansion of sales and services tax (SST), the introduction of the carbon tax and mandatory Employees Provident Fund contribution for non-citizen workers will require clarity beyond the proposed implementation date to facilitate preparation for these changes,” he said in a statement.

Chia also said that it was pleasing to note that no major new taxes were introduced in Budget 2025, giving businesses a breather after the multiple changes introduced in the previous budget.

He further said that with the global minimum tax expected to level the playing field as far as tax incentives are concerned, there is a pressing need to revamp our incentive regime to ensure that Malaysia attracts high-growth, high-value investments that continue to propel us into a high-income nation.

“Budget 2025 tackles the issue in three key proposals — streamlining the existing incentives, introducing non-tax incentives, and the commitment to review the feasibility of a strategic investment tax credit,” he said.

Meanwhile, KPMG Malaysia head of tax Soh Lian Seng said the act of widening Malaysia’s tax revenue base through the imposition of a two per cent dividend tax (starting in the year of assessment 2025) on dividend income of over RM100,000 earned by individual shareholders, is a unique idea, targeting the top 15% taxpayers without further burdening the other 85%.

“Positive outcomes for the benefit of national development can also be expected with the introduction of the carbon tax, a phased increase in the excise duty rates on sugary drinks, alongside the progressive broadening of the SST scope and rate coverage.\

“It is hoped that these tax reforms can be supported with clear regulations, guidelines, and a reasonable transition plan to ensure successful implementation,” he added.

Commenting on the announcement, Deloitte Malaysia country tax leader Sim Kwang Gek said this approach is clearly aimed at taxing the higher-income groups that receive significant dividend income.

“More clarification is needed on the exemption granted to dividends from companies enjoying pioneer status and reinvestment allowance incentive.

“This is because typically dividends are received from the investment holding company that has subsidiaries that claim such tax incentives. Would the exemption be available in such scenario?,” she added.

Sim also said that the revenue from the carbon tax, which will be used to fund research and green technology programmes, is a welcomed proposal to ensure Malaysia achieves its net-zero ambition.

“However, more thought can be put into allocating a certain sum to assist small and medium enterprises with limited financial resources to switch towards green investments,” she said.