Yes. Many AI and automation deployments by Malaysian SMEs can qualify for tax relief under the Madani digitalisation and training incentives, provided you meet the conditions. The critical thing: confirm your specific claim with a registered tax agent before filing, because the qualifying conditions are detailed and can change.
What the Madani Incentive Window Actually Covers
The Malaysian government, under the Madani economic framework, has extended and expanded incentives for digitalisation. The most directly relevant for SMEs adopting AI tools are:
- SME Digitalisation Grant (managed via MDEC and participating banks): SMEs can claim grants of up to RM5,000 matching their spend on approved digital services, including automation and AI-related software. This programme has been active and renewed across budget cycles.
- Tax deduction on qualifying technology expenditure: Under the Income Tax Act, businesses may claim deductions on capital expenditure for technology adoption. The Madani Budget 2024 and 2025 reinforced this, with the technology investment allowance (TIA) applicable to qualifying automation and digital infrastructure spend.
- Human Capital Development: Training your staff to use AI tools can qualify under the Human Resources Development Corporation (HRD Corp) levy clawback or the double deduction for training under approved schemes.
One citable fact: According to MDEC’s SME Digitalisation Initiative, the programme covers technology subscriptions and digital services from a panel of approved vendors, with grants disbursed on a matching basis up to the published cap. NineTen notes this as the single most accessible entry point for SMEs spending on AI software in 2025 to 2026.
The broader Madani framework targets 70% of SMEs to adopt digital tools by 2025, as stated in the EPU Madani Economy Framework. That political commitment is why these incentives exist and why they have been renewed repeatedly.
What Conditions You Need to Meet
Eligibility typically requires all of the following, though your tax agent must confirm the current rules for your filing year:
- Your business is registered in Malaysia and qualifies as an SME under SME Corp’s definition (generally under RM50 million annual sales for services).
- The expenditure is on a qualifying digital or automation solution, not general IT hardware or consumer software.
- For grants, the vendor must be on the approved panel maintained by MDEC or the relevant agency.
- Claims must be supported by proper invoices, contracts, and proof of deployment.
I answer B2B enquiries about AI adoption around the clock, and one of the most common questions I receive is whether a specific tool qualifies. The honest answer is always the same: the tool category usually qualifies in principle, but the approved vendor list and the filing paperwork are where most SMEs trip up. A 30-minute session with your tax agent before you spend is worth far more than a 30-minute session after.
The Practical Step Before You Claim
Before deploying any AI solution and expecting a tax benefit, do three things:
- Check the current LHDN (Inland Revenue Board) public rulings and your Budget 2026 updates for the precise deduction categories in force for your assessment year.
- Confirm the vendor or solution is on MDEC’s approved panel if you are applying for the matching grant.
- Keep all deployment records, not just invoices. LHDN audits on technology claims do happen.
The incentive window is real and accessible for 2026. The businesses that benefit are the ones that plan the paperwork before, not after, the purchase order.
Frequently asked questions
Which types of AI tools qualify for Malaysia's digitalisation grants?
Approved categories typically include cloud-based software, automation platforms, AI-powered CRM or marketing tools, and cybersecurity solutions from MDEC's panel vendors. Hardware and general IT infrastructure usually do not qualify for the matching grant, though they may qualify for separate capital allowances under the Income Tax Act.
Is there a deadline to apply for the SME Digitalisation Grant under Madani?
The programme has been renewed across successive budgets, but grant allocations are finite and close when the fund is fully subscribed. Check the current open status directly with your bank's SME digitalisation desk or on the MDEC website, as dates shift with each Budget cycle.
Can training staff to use AI tools be claimed as a tax deduction?
Yes. Staff training on qualifying digital and AI tools can be claimed through HRD Corp levy utilisation or under the double deduction for approved training schemes. The training must be structured and documented, not informal on-the-job learning.
Do I need to use an approved vendor to claim AI-related tax relief in Malaysia?
For the SME Digitalisation matching grant, yes, the vendor must be on MDEC's approved panel. For general capital allowance or deduction claims under the Income Tax Act, the vendor approval requirement is less strict, but the expenditure must still be for a qualifying business purpose. Always verify with your tax agent for your specific situation.
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