Malaysia budget 2027: Anwar courts urban voters and small businesses with tax cuts, reliefs

KUALA LUMPUR - In an attempt to win back middle-income urbanites and small businesses, Prime Minister Anwar Ibrahim has unveiled a series of tax reliefs and cuts targeting these groups in Malaysia’s Budget 2027, announced on Oct 9.

To that end, he proposed that individual tax relief be increased from RM9,000 (S$2,822) currently to RM12,000, and lifestyle tax claims be expanded to include artificial intelligence (AI) subscriptions, medical vaccinations and pet adoption expenses. Sports shoes will also qualify for tax relief under the sports category.

Individual taxpayers with annual taxable incomes of between RM70,000 and RM150,000 will also see a 1-percentage-point reduction in their tax rate. Together, the expanded reliefs and rate cuts are expected to save up to RM1,600 for 5 million taxpayers.

For micro, small and medium enterprises (MSMEs), a similar 1-percentage-point tax reduction will apply to the first RM600,000 of annual taxable income, offering savings of up to RM6,000 for an estimated 300,000 businesses.

The tax concessions come as Anwar’s Pakatan Harapan (PH) coalition faces pressure to shore up support among urban middle-income voters and small businesses. Since November 2025, PH has suffered setbacks in Sabah, Johor and Negeri Sembilan, driven largely by declining turnout and softening support among Chinese and Indian voters – raising questions about its ability to retain key constituencies ahead of the next general election.

Tax relief may ease urban discontent

Political analyst Phoon Wing Keong said urbanites, burdened by higher tax loads and rising living costs, have felt marginalised by past budgets that focused heavily on lower-income groups.

“The 2027 budget helps slightly reduce the dissatisfaction among urban voters facing a high cost of living, especially in light of the Anwar administration’s lacklustre reform performance,” Phoon, head of the Chinese community think-tank Huayan Policy Institute, told The Straits Times.

He noted that introducing reliefs for AI subscriptions and pet adoption reflects Anwar’s recognition of urban values, potentially helping to bolster his image among younger urbanites and progressive voters.

But PH faces competition for disaffected urban voters from breakaway party Parti Bersama Malaysia (Bersama), led by Anwar’s former lieutenant, Rafizi Ramli.

Describing the 2027 budget as a “populist” election budget, economist Lee Heng Guie noted that Anwar was walking a high-stakes balancing act to appeal to different voter groups ahead of the next federal election, which is due by February 2028.

“We have seen higher cash handouts and social assistance totalling RM60 billion, which boost the disposable income of the M40 and lower the burden on MSMEs,” Lee, executive director of the Socio-Economic Research Centre (SERC), told ST. M40 stands for “Middle 40%”, which represents the middle-income household group in Malaysia.

In previous budget speeches as Finance Minister, Anwar focused on reducing education and petrol subsidies for the “mahakaya” (ultra-rich) or the top 15% of earners – measures aimed at generating revenue that also drew backlash from some of those affected.

Relief may not be enough to win back voters

Yet, these latest budget announcements are doing little to re-energise traditional PH supporters across Kuala Lumpur and Selangor.

But the tax measures may do little to re-energise traditional PH supporters in Kuala Lumpur and Selangor, where frustration over the cost of doing business and the government’s broader policy choices persists.

A former SME banker who wished to be identified only as Yow, 38, is among those disillusioned. He left the SME financing business altogether after the rollout of e-invoicing, which some small business owners say has added to their compliance costs.

“SMEs are treated as if they belong to the mahakaya,” Yow told ST. “I couldn’t sustain my revenue stream and had to walk away.”

He remains sceptical of the budget’s immediate impact, pointing out that the tax reliefs will only be felt when taxpayers file their returns in 2028 – potentially too late to sway voters if the general election is held in 2027.

For housing developer Poh Kok Ann, 36, the former 6 per cent Goods and Services Tax (GST) was preferable to the current 8 per cent Sales and Service Tax (SST), which he said added to his operating costs. Under the GST, businesses could claim input tax credits on eligible purchases.

“The current 8% SST rate adds an extra tax burden on our operational costs, including professional and legal services,” Poh told ST.

PH, under then-Prime Minister Mahathir Mohamad, abolished the GST in 2018 and reinstated the SST, arguing at the time that the GST placed an undue burden on lower-income groups.

Even so, Poh credited Anwar for property-related incentives, pointing to expanded stamp duty exemptions for first-time homebuyers that have helped boost his business.

Under the measures, properties priced at up to RM500,000 are fully exempt from stamp duty on the transfer instrument and loan agreement. For homes priced above RM500,000 and up to RM750,000, the first RM500,000 is fully exempt, with a 50% exemption on the balance.

But such measures have not won over everyone. Yow, for one, remains unconvinced.

“I’m considering (voting for) Bersama or MCA (in GE16),” he said. “Anyone but PH.” MCA is part of Barisan Nasional (BN), a rival coalition to PH.