BUSINESSES, economists and industry players are closely watching for measures that could reshape Malaysia’s investment landscape in Budget 2026.
After two years of policies seen as favouring households over enterprises, the private sector is signalling clear expectations, which are structural reforms, targeted incentives and strategies to attract foreign capital.
Small and medium enterprises (SMEs) say past budgets have largely ignored the segment.
SME Association of Malaysia president Chin Chee Seong said for the past two years, the budget has not really helped any SMEs but more towards taking care of the citizens instead of businessmen.
As SMEs press for tax relief to free capital for reinvestment, Chin suggested lowering corporate tax brackets for smaller firms.
“We are talking about RM600,000 and below, you tax at 17%. It can be reduced to RM200,000 or RM300,000 with a low tax bracket so that we can have more funds to reinvest,” he said to The Malaysian Reserve (TMR).
Digitalisation is another priority. With mandatory e-invoicing on the horizon, SMEs struggle with costs and technical know-how. Chin recommended government support through matching grants, citing a proposed RM1 billion allocation to ease the transition.
To attract foreign partnerships, Chin advocated regulatory nudges ensuring local participation in joint ventures, particularly in service sectors.
He added that government promotion via Malaysia External Trade Development Corp (Matrade) could link SMEs with international buyers and partners, expanding their reach into South-East Asia and beyond.
Meanwhile, access to affordable credit remains a sticking point. Chin proposed short-term and low-interest loans for SMEs that demonstrate growth potential but are hit by temporary cashflow issues.
“The government should come up with a special body just to look into how to help these people.
“They are potentially good, but because of the economic situation, low demand and less consumer spending, they fall into a cashflow trap,” he said, noting the compounded pressures of inflation and higher operating costs.
Planworth Global Factoring Sdn Bhd CEO Datuk Andy Kuek called for immediate measures to improve SME financing.
These include exemption from sales tax and stamp duties on factoring facilities and expanded government guarantees to reduce borrowing costs. Such steps would make invoice financing more attractive and accessible.
The company is a financial services firm specialising in SME factoring and financing. Kuek also urged policy to encourage private equity and venture capital participation, recommending co-investment schemes and sector-specific credit guarantees. Export-oriented SMEs could benefit from faster, lower-cost credit insurance and targeted matching grants and vouchers for market entry.
Nevertheless, the company said it is open to discussions with the government aimed at “meaningfully expanding SME access to finance” and supporting the nation’s competitiveness.
Policy Consistency Shapes Investor Confidence
Investor sentiment remains sensitive to policy reversals and governance concerns, according to economist Prof Geoffrey Williams. He warned that inconsistent policies erode credibility.
“Policy inconsistencies cause confusion among investors. They cannot rely on policy statements and so they cannot make investment decisions,” he told TMR.
Governance lapses have similar effects. Poor enforcement or perceived corruption deters high-quality investors while attracting those seeking loopholes, often with damaging long-term consequences.
He noted that fiscal policy has so far centred on structural reforms in fiscal management, yielding tangible benefits.
Williams noted successes in subsidy rationalisation have freed resources for education, healthcare and social protection. He advocated extending reform to low-income support, pointing to universal basic income schemes as a potential tool for social assistance.
“Reforming the RM15 billion Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) by moving to monthly payments will be hugely effective in this regard.
“Extending it to more people would also be very impactful. For example, a RM100 per month universal basic income would be affordable with an extra RM11.4 billion from the RM17 billion savings from subsidy rationalisation,” he explained.
Capital market liberalisation, Williams argued, could send the strongest positive signals to foreign investors, outweighing tax reform or green finance initiatives.
Malaysia’s existing incentives often favour government-linked companies (GLCs), leaving private firms slower to respond and at a competitive disadvantage.
On the issue of brain drain, Williams stressed the stock of skilled Malaysians is underutilised.
“Malaysia does not have a shortage of talent, there are almost two million people in jobs requiring lower qualifications than they already have. Malaysians leave to work overseas because it is better for them.
“However, there is also a strong inflow of foreign talent relocating here, therefore the overall talent pool is strong and there is no problem with talent availability,” he reasoned.
Furthermore, Williams said regional peers offer few lessons for Malaysia but the general global examples point to low taxes, light regulation, less government interference, few trade and investment barriers, and good reputation for the rule of law and good governance.
“Well-managed, agile, competitive and innovative liberal markets are the foundation of strong investment,” he added.
Regional Benchmarking: Lessons from Neighbours
Centre for Market Education CEO Dr Carmelo Ferlito pointed to lessons from ASEAN peers.
Vietnam currently reaps the biggest benefits from investment inflows but is institutionally fragile while Indonesia, despite its market size, struggles with regulation and labour deployment.
“But Indonesia’s Investment Ministry is working hard to fill the gap and it is currently revising business regulation; in this regard, they recently launched, in conjunction with the European Union (EU), the establishment of a EU Investment Desk to facilitate market entry for EU investors,” he noted.
Malaysia offers regulatory clarity and a skilled workforce, though this advantage has weakened in recent years.
In Malaysia, he noted that gauging business sentiment is complex, however, Department of Statistics Malaysia (DOSM) data points to moderate optimism.
On whether Malaysia should prioritise capital market deepening or industrial incentives, he said sustainable growth is built on strategic industrial projects rather than the inherently volatile capital market.
On a different note, Ferlito criticised the subsidy U-turn as undermining investor trust and called for reforms in banking legislation and labour rules.
He urged a reduction in GLC dominance and more market-driven allocation of capital. “The government should rationalise spending instead of increasing it to prevent market distortions and inflationary pressures,” he added.
He noted that the government has so far shown little in the way of a clear pro-market agenda and suggested that, instead of large-scale policies such as blueprints or white papers, it should focus on micro measures that ensure smoother business operations.
Ferlito also noted that recent weeks have shown a more populist attitude in policy, despite encouraging statements on tax reform by the Finance Minister II Datuk Seri Amir Hamzah Azizan.
He cautioned, however, these tendencies are likely to prevail, as politics is naturally consensus-driven.
Ferlito added that stronger investor confidence would come from “less handouts and a clear pro-market reformist agenda.”
Semiconductors: From ‘Made in Malaysia’ to ‘Made by Malaysia’
High-tech industries are looking to Budget 2026 to accelerate Malaysia’s move up the value chain.
Malaysia Semiconductor Industry Association (MSIA) president Datuk Seri Wong Siew Hai framed this as a shift from “Made in Malaysia” to “Made by Malaysia”.
The sector seeks targeted cost relief, talent incentives and stronger support for research, development, commercialisation and innovation (RDCI).
“By delivering targeted cost relief, talent incentives and stronger support for RDCI, we can accelerate the implementation of the National Semiconductor Strategy (NSS) and secure Malaysia’s place as a global semiconductor powerhouse,” Wong said in a statement.
Semiconductors underpin artificial intelligence (AI), 5G networks, electric vehicles (EVs) and data centres.
Strengthening this sector not only secures Malaysia’s role in global supply chains but also drives growth across other high-tech industries, from advanced electronics to smart manufacturing.
MSIA recommends relief on stamp duty, Sales and Service Tax (SST) and regulatory streamlining to reduce costs, particularly for capital-intensive and investment-linked operations.
Talent incentives include targeted tax reliefs for engineers, support for Science, Technology, Engineering and Mathematics (STEM) education, and the designation of select universities as centres of excellence to focus resources efficiently.
Wong stressed the need to retain local talent while also leveraging foreign STEM expertise to fill immediate gaps in advanced design and development.
The association also highlights the importance of supply chain resilience and the introduction of a Qualified Refundable Tax Credit to offset global minimum taxes.
Streamlined customs approvals, faster investment incentive processes and updated frameworks for Licensed Manufacturing Warehouses (LMW) and Free Industrial Zones (FIZ) are critical to supporting investment and export competitiveness.
MSIA said these steps are essential to ensure Malaysia remains attractive to investors while enabling domestic firms to compete regionally and globally.
What Budget 2026 Must Deliver
Across sectors, several themes converge. SMEs require tax relief, digitalisation incentives and easier access to financing. Investors demand policy consistency, governance reforms and a clear pro-market agenda.
High-tech industries call for cost relief, talent retention and innovation support to move Malaysia up the global value chain.
Experts largely agree on the direction: Structural reforms over populist spending, clear signals to attract foreign capital and targeted measures to support SMEs and strategic industries.
These steps are not only about immediate fiscal impact, but about shaping Malaysia’s long-term investment climate.
As Budget 2026 approaches, the government faces the challenge of balancing social priorities with measures that restore business trust, attract investment and ensure Malaysia’s economy remains competitive in a rapidly shifting global environment.
Source: https://themalaysianreserve.com/2025/10/09/malaysias-investment-outlook-ahead-of-budget-2026/