Kuala Lumpur: The government’s fiscal reform initiatives, including expanding the Sales and Services Tax (SST) scope and rationalising electricity and diesel subsidies, aim to ensure fiscal sustainability while protecting lower-income groups and essential sectors. Treasury secretary-general Datuk Johan Mahmood Merican emphasized these points during a session at the Sasana Symposium 2025, hosted by Bank Negara Malaysia.
According to BERNAMA News Agency, one of the key fiscal reform elements is the Fiscal Responsibility Act, which aims to reduce the government’s fiscal deficit to 3.8 per cent of the gross domestic product (GDP) in 2025 and further to 3.0 per cent by 2028. Johan highlighted the importance of a more targeted approach to the SST, reflecting the spirit of social protection as advocated by Prime Minister Datuk Seri Anwar Ibrahim.
Johan noted that the government must increase its tax base, as the current tax-to-GDP ratio stands at about 12.5 per cent, one of the lowest in the region. He stated there is room to expand the tax base for sustainable expenditure and to meet growing demands for social protection and basic infrastructure. The focus is on ensuring that basic daily goods are not subject to higher SST, thereby protecting lower-income groups.
From an equity standpoint, Johan pointed out that providing the same amount of assistance to both low-income and high-income individuals is counterintuitive. The government typically adopts a more targeted approach to ensure aid reaches those who need it most. The allocation for Sumbangan Tunai Rahmah (STR) increased from RM10 billion in 2024 to RM13 billion this year, including the Sumbangan Asas Rahmah (SARA) programme.
Johan also addressed the challenges of implementing a progressive wealth tax, despite its alignment with Islamic principles such as zakat. He explained that while income and consumption taxes are easier to manage, wealth tax presents significant challenges in terms of administration, enforcement, and data availability. He noted that administering a wealth tax is a global challenge, not just a Malaysian issue.