World Bank urges Malaysia to expand tax revenue without raising rates in Budget 2027

The World Bank has urged Malaysia's government to focus on boosting tax revenue in Budget 2027 without increasing tax rates. Dr Apurva Sanghi, the World Bank's Lead Economist for Malaysia, emphasized that increasing tax revenue is crucial as the country's tax revenue has declined relative to its Gross Domestic Product (GDP).

Sanghi suggested several ways to enhance revenue mobilization without raising tax rates. One approach is to lower the income threshold for higher individual marginal tax rates, which currently is relatively high compared to other countries. Lowering this threshold could increase revenue without raising the tax rate.

Another potential strategy is to simplify the corporate income tax structure for small and medium enterprises (SMEs) by consolidating multiple tax rates into a single preferential rate. Additionally, the government should phase out special tax treatment when SMEs grow beyond the SME threshold to avoid a "tax cliff" that discourages SMEs from formal expansion.

Sanghi also recommended increasing the assistance amount per recipient in existing social protection schemes like the Sumbangan Asas Rahmah (SARA) and Sumbangan Tunai Rahmah (STR). While coverage of these programs has expanded, the adequacy of benefits remains an issue as the benefits are spread thin across many recipients. Increasing the benefit per recipient could be considered in Budget 2027.

Lastly, Sanghi proposed extending coverage under the Employment Insurance System (EIS) to gig workers, possibly through government-matching grants to encourage participation. This would strengthen social protection for senior citizens as Malaysia approaches aging nation status.