The Malaysian government expects to raise an estimated RM10 billion in additional revenue within six months through the expansion of the Sales and Service Tax (SST), starting from 1 July, according to Datuk Johan Mahmood Merican, Secretary General of Treasury at the Ministry of Finance. 

Speaking during a panel session at Bank Negara Malaysia’s Sasana Symposium 2025 on Wednesday, Johan said the move forms part of broader fiscal reforms aimed at enhancing resilience and sustainability.

He stated that the government needs to increase its tax base, as Malaysia’s tax-to-GDP ratio stands at approximately 12.5%, one of the lowest in the region. There is clear scope for expansion, both to ensure the long-term sustainability of public expenditure and to meet rising demands for social protection, infrastructure, and essential services.

The SST expansion, he explained, is designed to raise revenue while protecting lower-income households from additional financial burdens. To that end, basic goods are exempted, while higher-end consumption and business-related services are the primary focus of the revised tax structure.

Johan noted that the revenue target was based on internal modelling which considered the composition of the Malaysian Consumer Price Index. While external estimates, such as one by CIMB Securities, suggested a potential impact of 0.25% on inflation, the Ministry of Finance projects a slightly lower effect. The expanded SST will primarily apply to sectors with greater spending capacity, including fee-based financial services, commercial construction, and discretionary imports.

In response to a question on whether the government had considered implementing a progressive wealth tax, Johan acknowledged that such an idea is conceptually appealing, particularly as a tool for addressing wealth inequality and broadening the tax base. However, he stressed that there are significant practical and administrative challenges.

He explained that income and consumption taxes are based on regular, traceable transactions such as salaries and purchases, making enforcement more straightforward. Companies pay salaries and conduct sales through registered channels, allowing authorities to track these flows and apply taxes accordingly.

In contrast, taxing wealth presents a more complex problem. Johan emphasised that obtaining reliable data or declarations of personal wealth is not a simple task, making it difficult to implement a consistent and equitable system. Even within targeted aid programmes like Sumbangan Tunai Rahmah (STR), the government continues to rely on income data, as it has far greater access to income and consumption information than to comprehensive indicators of personal wealth.

He added that while the notion of a wealth tax is intellectually attractive, it remains administratively difficult to execute under current conditions.

• TAGS:
• Bank Negara Malaysia
• BNM
• Datuk Johan Mahmood Merican
• Ministry of Finance
• MOF
• Sales and Service Tax
• SST
• Wealth Tax