Indirect Tax Alert
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Budget 2026 Edition | 10 October 2025
The 2026 Budget proposal was read by the Minister of Finance in the Dewan Rakyat today.
We set out below a summary of the indirect tax measures proposed in the Budget.
1. Removal of Tax Exemptions on Luxury Cars imported into Langkawi and Labuan
(effective 1 January 2026)
Currently, motor vehicles of any value imported into Langkawi or Labuan are exempt from import duty, excise duty and sales tax. It is proposed that effective from 1 January 2026, motor vehicles with a value exceeding RM300,000 will be subject to import duty, excise duty and sales tax when they are imported into Langkawi or Labuan.
PwC Comment
The intention is to prevent the misuse of the exemptions.
2. Import Duty and Sales Tax Exemption on Nicotine Replacement Therapy ("NRT") products
(effective 11 October 2025)
Currently, NRT products (gum, patch, mist, lozenges) are subject to import duty and sales tax. Gum and patch were given an exemption effective 1 April 2023 until 31 March 2026, by way of application to the Ministry of Finance (MOF). It is proposed that the exemption be extended from 11 October 2025 to 31 December 2027 and expanded to cover other NRT products (i.e. mist, lozenges).
PwC comment
The granting of the exemption is subject to an application to the MOF. The Appendix to the Budget 2026 indicates that the MOF will consider applications received between 11 October 2025 and 31 December 2027. The measure supports the Healthy Malaysia National Agenda for smoking cessation.
3. Excise Duty Increase on Tobacco Products
(effective 1 November 2025)
It is proposed that there will be phased increase in the rate of excise duties from RM0.02 per stick for cigarettes (current RM0.40 per stick), RM40 per kilogram for cigars, cheroots, and cigarillos (current RM400 per kg) and RM20 per kilogram of tobacco content for heated tobacco products (current RM778 per kg).
PwC Comment
The proposed increase in excise duty will impact sales tax calculations, even though the sales tax rate remains unchanged at 10% for tobacco products. This is because sales tax is computed on the total value, which includes excise duty.
4. Increase in excise duty on alcoholic beverages
(effective 1 November 2025)
It is proposed that the excise duty rate on alcoholic beverages will be increased by ten percent.
PwC Comment
The proposed excise duty increase is expected to impact product pricing, with a corresponding rise in sales tax costs, as sales tax is calculated on the total value inclusive of excise duty. The purpose is to reduce access to alcoholic beverages and promote a healthier lifestyle.
5. Introduction of digital tax stamp with heightened security features
(effective date yet to be announced)
Currently, a tax stamp is required to be affixed on imported cigarettes, tobacco products, and intoxicating liquors such as spirits, wine, beer, stout, and similar products intended for retail sale in Malaysia. The Budget proposes to introduce a digital tax stamp with enhanced security at the point of entry (pintu masuk negara) through the Centralised Screening Complex CCTV to curb counterfeiting and address revenue leakage.
PwC Comment
Digital tax stamps enable governments to strengthen tax administration and compliance by simplifying the verification, tracking, and monitoring of excisable goods. It may result in the introduction of new rules as to the process for acquiring tax stamps and the type of goods that are subject to tax stamps, as their use may not be limited to tobacco and alcohol.
6. Excise duty and sales tax exemptions for purchase of new PROTON or PERODUA car by private taxi and rental car owners
(continuation of existing exemptions)
The exemptions of excise duty and sales tax will continue to apply to the purchase of new national cars (PROTON and PERODUA) by private taxi and rental car owners.
PwC Comment
The continuation of excise duty and sales tax exemptions for PROTON and PERODUA vehicles supports the local automotive industry while providing crucial financial relief for private taxi and rental car owners.
We hope this issue of Indirect Tax Alert is useful to you in highlighting the indirect tax impact of the Budget 2026. If you wish to discuss any aspects of these updates, do reach out to us.
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