Budget 2027 Cuts MSME Tax Rates and Extends ICT and Software Allowances

Prime Minister and Finance Minister Anwar Ibrahim told the Dewan Rakyat on 9 October that the government will cut the MSME income tax rate by one percentage point. He said micro, small and medium enterprises contribute 40 per cent of the economy and employ 8 million people, or half of the workforce.[1]

The Finance Ministry's tax paper adds the detail. The first RM150,000 of chargeable income would be taxed at 14%, down from 15%, and the band up to RM600,000 at 16%, down from 17%. Income above RM600,000 stays at 24%.[2]

The tax paper defines an MSME for this purpose. A company or limited liability partnership qualifies if its paid-up or partnership capital is RM2.5 million or less and its annual sales do not exceed RM50 million. The proposed rates apply from year of assessment 2027.[2]

The speech says the cut is worth up to RM6,000 in extra income for more than 300,000 MSMEs. That figure checks out against the new bands: one point on RM150,000 is RM1,500, and one point on the RM450,000 above it is RM4,500. A firm with less chargeable income saves less.[1][2]

The accelerated capital allowance lets companies claim qualifying spending quickly: 20% as an initial allowance and 40% in each of the next two years, so the full amount is claimed within two years. Qualifying items include ICT equipment, computer software packages, and consultation, licensing and incidental fees for developing customised software.[2]

The incentive is due to lapse for spending after 31 December 2026. Budget 2027 proposes four more years, covering qualifying spending from 1 January 2027 to 31 December 2030. The Finance Ministry says the aim is to boost domestic direct investment and speed up digital technology adoption in businesses.[2][1]

The tax paper mentions AI once, in the personal lifestyle relief. Neither the MSME rates nor the allowance names it, and the paper does not say whether a cloud AI subscription, a model licence or an automation project counts as a software package. Firms should not assume coverage.[2]

AI support sits elsewhere in the speech. A RM30 million MDEC fund will help 4,000 MSMEs adopt AI and automate operations, and will train and certify 5,000 AI professionals. The Ministry of Digital repeats the MSME target, and neither document explains how firms apply.[1][3]