Ahead of Budget 2027, World Bank tells Putrajaya to raise revenue without raising rates

KUALA LUMPUR, Oct 6 — Malaysia requires a tax reform to tackle a structural decline in its tax revenue-to-GDP ratio, which has decreased from 15 per cent 15 years ago to 12.7 per cent of GDP, according to World Bank lead economist Apurva Sanghi. Despite the contained fiscal deficit, federal government debt has risen to 65.2 per cent of GDP, with debt servicing costs increasing to 17 sen of every ringgit in revenue.

While raising tax rates may be challenging, there are alternative ways to boost tax revenue without increasing rates, Sanghi stated during a briefing on the East Asia and Pacific Economic Update in October 2026. He suggested simplifying the corporate tax system for SMEs by consolidating the tax structure, as this would benefit businesses.

Furthermore, transitioning SMEs to non-SME status should be encouraged to maintain the tax advantages SMEs currently enjoy. Lastly, the budget should make the tax system more investment-friendly by allowing qualifying investments to fully cover the investment cost.