8th October 2026 - 5 min read
World Bank lead economist Apurva Sanghi said on 6 October that Malaysia needs tax reform to address a long decline in how much tax it collects, three days before Budget 2027 is tabled on Friday, 9 October. Whenever tax reform comes up, so does GST.
GST isn’t coming back as you knew it, but some of its features are being added to SST, and small businesses could see changes too.
Malaysia’s tax revenue now works out to 12.7% of GDP, down from 15% about 15 years ago. The government is collecting a smaller share of what the economy earns than it used to, and that affects you too.
Sanghi said federal government debt stood at 65.2% of GDP at the end of 2025. The Finance Ministry says it has since fallen to 63.1% in the first quarter of 2026. Even so, Sanghi said the cost of servicing that debt is rising, and 17 sen of every ringgit the government raises now goes to debt servicing.
That’s roughly RM58 billion of the RM343.1 billion in revenue the Finance Ministry expects this year, about as much as the RM59.6 billion it expects from SST.
On 19 August, Cabinet told the Finance Ministry to study a hybrid GST-SST system, led by Finance Minister II Amir Hamzah Azizan. No timeline was set for the study.
The next day, Prime Minister Anwar Ibrahim, who is also Finance Minister, ruled out bringing back GST as a broad-based tax. His concern is that GST taxes everyone, including the poorest households. He did say the government is open to adding some GST features to SST.
On 7 October, Deputy Finance Minister Liew Chin Tong told the Dewan Rakyat that SST will stay, with GST elements added to stop tax being charged on top of tax. He didn’t say which elements, or when they’d start.
The problem Liew described is called cascading. Under SST, a shop or company that pays tax on things it buys for the business, like equipment or services, often can’t get that tax back. So it adds the cost to its prices, and you end up paying that tax without seeing it on your receipt. GST fixed this by letting businesses claim that tax back (called input tax credit). If SST borrows something similar, some prices could come down. A lot depends on which features are added and the tax rates that come with them.
The government’s argument is that SST already collects more than GST did. Anwar said in a written reply to Parliament in January that SST brought in an estimated RM55.9 billion in 2025, against the RM44 billion GST collected in 2017. The economy has grown since 2017, though. Compared with the size of the economy (GDP), Malaysia collects less tax than it used to.
Sanghi acknowledged that raising tax rates would be difficult, and said there are ways to collect more tax without doing that. One of them is changing how SMEs are taxed.
A qualifying SME company pays 15% on its first RM150,000 of chargeable income, 17% on the next RM450,000 and 24% on anything above that.
Sanghi said about 98% of Malaysian companies are SMEs. These lower rates only apply to SMEs set up as a Sdn Bhd, so sole proprietors and partnerships, who pay personal income tax, aren’t affected by what follows. A company qualifies if it has paid-up capital of RM2.5 million or less and gross business income of RM50 million or less, among other conditions. The rates also don’t apply if more than 20% of the company’s paid-up capital is owned by foreign companies or non-Malaysians.
Once a company goes over RM2.5 million in paid-up capital or RM50 million in income, it loses those lower tiers and pays 24% on all of its chargeable income. The World Bank calls this a tax cliff, because the tax bill jumps all at once when a company goes over these limits. It said this gives SMEs less reason to grow bigger. On RM600,000 of chargeable income, the difference looks like this.
| Chargeable Income | SME Tax | Non-SME Tax |
| First RM150,000 | RM22,500 (15%) | RM36,000 (24%) |
| Next RM450,000 | RM76,500 (17%) | RM108,000 (24%) |
| Total tax on RM600,000 | RM99,000 | RM144,000 |
That’s RM45,000 more in tax on the same profit, just for going over the limit. If you run a Sdn Bhd and are thinking of putting more money into it as share capital, check with your accountant first. Taking its paid-up capital past RM2.5 million is enough to lose the SME rates. Paid-up capital is checked at the start of each basis period (usually your company’s financial year), so money added partway through the year affects the following year.
The World Bank’s suggestion is a single preferential rate for SMEs that phases out as a company grows, so the jump isn’t as steep. If Budget 2027 picks this up, it could show up as a change to these tiers.
A World Bank briefing doesn’t change anything you pay. Any new tax or rate change has to be formally approved before it applies to you. Until then, the SST you pay stays the same, with service tax at 6% or 8% depending on the service and sales tax at 5% or 10% on taxable goods.
We’ll be covering Budget 2027 when Anwar tables it on Friday, looking out for these and what each one means for your money.
In the meantime, you can catch up on last year’s changes in our Budget 2026 coverage.
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Christina writes about personal finance with an eye for making the complicated feel straightforward. She is drawn to the everyday money decisions people face and genuinely enjoys finding the clearest way to explain them. Between articles, she is probably napping, on a hiking trail, or terrorising her sister’s cats.
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