Malaysia Maintains SST as Cost-of-Living Pressures Rule Out a Return to GST

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Malaysia Maintains SST as Cost-of-Living Pressures Rule Out a Return to GST

Highlights

Malaysia is retaining SST and improving the system to shield lower-income groups from the regressive tax burden of GST.
SST revenue is projected to rise to RM67 billion in 2026 and RM73.3 billion in 2027, an increase of RM17.4 billion over two years.
Nearly 700,000 businesses were registered under GST in 2018, compared with just 130,000 under SST in 2026, pointing to higher compliance costs if GST is reintroduced.

This article was translated from the original. Read the original version by our correspondent here.

Government's case and tax revenue projections

As reported by The Edge Malaysia, Second Finance Minister Datuk Seri Amir Hamzah Azizan said the government would continue to improve SST to reduce the impact of cascading taxes and simplify compliance. He said the system allows for a more progressive and targeted approach, as the government can choose which goods and services to tax while exempting essential items.

When winding up the policy-stage debate on the Supply Bill, Budget 2027, for the Ministry of Finance in Parliament on Thursday, Amir Hamzah said GST tends to be regressive because lower-income groups spend a larger share of their income on goods and services. Even at the same tax rate, he said, the burden relative to income is heavier, particularly for the B40 and M40 groups. Any additional revenue must therefore be assessed alongside the burden borne by the public.

According to the Fiscal Outlook 2027, SST revenue is estimated to rise to RM67 billion in 2026, up from RM55.9 billion in 2025. Collections are projected to reach RM73.3 billion in 2027, an increase of RM17.4 billion over two years.

Implications for consumers and businesses

Amir Hamzah said SST revenue currently accounts for 3% of gross domestic product, the same level as GST in 2017. This means replacing SST with GST would not necessarily generate additional revenue; instead, it would shift the entire tax burden from businesses, including exporters, to the public.

He said the government recognises GST's advantages in collection efficiency, transparency and its input tax credit mechanism. However, the choice of tax system must take into account people's ability to pay while retaining the flexibility to exempt essential goods from tax.

On compliance, he said nearly 700,000 businesses were registered under GST in 2018, compared with about 130,000 under SST in 2026. This comparison shows that more businesses would have to bear compliance costs if GST were reintroduced.

In our previous coverage of Malaysia's target to reduce its deficit to below 3% of GDP, we outlined the government's fiscal consolidation plan, backed by targeted subsidy reforms and digitalisation to improve public spending efficiency. We also explained that achieving this target depends heavily on strong revenue collection and the implementation of more precisely targeted subsidy mechanisms, as well as external factors such as oil prices and social spending pressures.

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