Budget 2025 and SMEs: Key Tax Strategies for Financial Growth

The Budget 2025 introduces several crucial tax incentives and initiatives aimed at supporting SMEs and enhancing theirfinancial sustainability and growth. By leveraging these incentives, SMEs can manage increased labour costs, improve operational efficiency, and strengthen their financial resilience. 

Budget 2025 affirms that Goods and Services Tax (GST) will not be re-introduced but the existing SST scope will include additional services and nonessential goods starting May 2025. To adapt seamlessly, SMEs should thoroughly review the expanded SST to identify services and nonessential goods thatwill be affected, adjust their pricing strategies and update theiraccounting systems for compliance. Engaging tax advisors canfurther assist SMEs in assessing potential impacts on cash flow, and developing mitigate strategies. SMEs should also stay informed about stakeholder feedback sessions to voice concerns and gain clarity on implementation details. By proactively managing these changes, SMEs can maintain financial sustainability and avoid unexpected tax liabilities.

To promote workforce inclusivity, Budget 2025 introduces 50 percent additional tax deduction for hiring women returning to work and implementing flexible work arrangements. SMEs toocan promote inclusivity by identifying suitable roles for women re-entering the workforce and assessing flexible work arrangements. Updating Human Resource policies to support these initiatives and actively recruiting eligible candidates areessential. SMEs should also document related expenses carefully to claim the tax deduction. Additionally, collaborating with Talent Corporation Malaysia Berhad (TalentCorp) for guidance can further streamline the process and maximise the benefits. These measures can enhance workforce diversity, improve employee retention, and contribute to long-term financial sustainability by reducing turnover costs.

Tax Strategies

To address the rising cost of living, Budget 2025 announced anincrease in the minimum wage from RM1,500 to RM1,700, which will increase labour cost for SMEs. To this impact, SMEs should leverage available tax incentives to offset increased wage expenses and explore other relevant deductions and credits, such as those for capacity-building and software procurement, to easefinancial challenges. Consulting with tax advisors can help SMEs identify and maximise available incentives, ensuring abalanced approach to managing increased labour costs while maintain financial sustainability.

A new tax relief on housing loan interest for first-timehomebuyers can help SMEs retain current employees and be seen as more attractive to prospective ones by highlighting this benefit in recruitment materials and internal communications. Educating employees on eligibility and assisting them in understanding claims can enhance employee satisfaction and retention, thus creating a more stable workforce, reducing recruitment and training costs, and contributing to financial sustainability.

Budget 2025 also announced accelerated capital allowance tax incentive for Smart Logistics Complex (SLC) activities.  To leverage this, SMEs should assess their current logistics operations and identify areas where SLCs investment could enhance efficiency and reduce costs. Investing in qualifying capital expenditures, such as smart warehouses and advanced logistics technologies, is crucial. Applying for the tax allowance through Malaysian Investment Development Authority (MIDA) for guidance and ensuring all applications are submitted on timecan help SMEs maximise the benefits. These investments can improve operational efficiency, reduce long-term costs, and support financial sustainability by enhancing competitiveness.

Dividend

Budget 2025 also introduced a 2 percent tax on individual dividend income exceeding RM100,000 from the year of assessment of 2025. To minimise its impact, SMEs should review their dividend distribution policies and consult with tax advisors to understand the implications of this tax. Potential mitigation strategies may include adjusting dividend payout schedules, exploring alternative forms of shareholder returns, or reinvesting profits into the business. SMEs should also ensure accurate record-keeping and compliance with the new tax regulations to avoid penalties. Proactive planning and expert consultation can help SMEs navigate this change effectively, and maintain financial sustainability by optimising tax liabilities and preserving cash flow.

To strengthen the local supply chain and the ecosystem of priority sectors, double tax deduction for expenditure under the Supply Chain Resilience Initiative was introduced. To leverage this, SMEs should identify and document all qualifyingexpenditures, particularly investments aimed at enhancing local supply chains and collaborating with multinational enterprises (MNEs). Engaging with industry regulatory bodies and staying informed about the initiative’s requirements can help SMEs maximise the benefits. Proactive planning and strategic investments in supply chain resilience are key to leveraging this incentive. These actions can enhance supply chain stability, reduce costs, and support long-term financial sustainability.

Overall, the Budget 2025 has introduced tax incentives and initiatives that offer significant opportunities for SMEs to enhance their financial growth and sustainability. By strategically leveraging these measures, SMEs can navigate the evolving tax landscape, optimise their financial performance, and secure a competitive edge in the market. These targeted benefits are specifically designed to support the unique challenges and needs of SMEs, ensuring they can thrive in a competitive environment.

Associate Professor Dr Nor Shaipah Abdul Wahab, CPA(Australia) is the Head of School for the School of Accounting and Finance at Taylor’s Business School, Taylor’s University. Taylor’s Business School is the leading private business school in Southeast Asia for Business and Management Studies based on the 2024 QS World University Rankings by Subject and has received the Association to Advance Collegiate Schools of Business (AACSB) accreditation.

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