Fiscal reforms aimed at boosting public finances, protecting low-income groups

Free Malaysia Today

4 hours ago

Treasury secretary-general Johan Mahmood Merican assured the public that the government is working to ensure that essential daily goods remain unaffected by the expansion of the sales and service tax. (Facebook pic)
PETALING JAYA : The government's fiscal reform efforts, including the sales and service tax (SST) and the rationalisation of electricity and diesel subsidies, are aimed at strengthening public finances while protecting low-income groups and key economic sectors.
Treasury secretary-general Johan Mahmood Merican today acknowledged recent public discussions on the SST expansion and said that the government was working to ensure that essential daily goods remain unaffected, reported Bernama.
Speaking at the Sasana Symposium 2025 hosted by Bank Negara Malaysia, Johan stressed the need to broaden the country's tax base to ensure sustainable expenditure as well as to meet growing demands for social protection and basic infrastructure.
'We need to increase our tax base as our tax-to-GDP (ratio) is about 12.5%, which is among the lowest in this region,' he said.
'How do we then try to approach it more progressively? It is the government that needs to provide additional funding.'
Johan also emphasised the importance of targeted subsidies and assistance, saying that providing the same aid to both high- and low-income groups undermines equity.
He highlighted the increase in government cash assistance, with Sumbangan Tunai Rahmah (STR) rising from RM10 billion in 2024 to RM13 billion this year, and the inclusion of Sumbangan Asas Rahmah.
He said while a progressive wealth tax was appealing and aligned with Islamic principles such as zakat, it presented major challenges in terms of administration, enforcement, and data availability.
He said that income and consumption taxes were easier to manage due to the regular and traceable transactions, whereas wealth was harder to assess and value.
'I think the real challenge – and it is not just a Malaysian issue – is that it is quite challenging to administer a wealth tax compared to an income tax,' he added.
Last week, the finance ministry announced that zero tax rates would remain for essential goods, while a rate of 5% to 10% would be imposed on non-essential items from July 1.
The scope of the service tax will be expanded to cover rental, leasing, construction, financial services, and private healthcare and education services.
Under the new tax regime, a 6% service tax will be imposed on construction services for infrastructure, commercial, and industrial buildings if the taxable value exceeds RM1.5 million annually.
The same rate applies to private healthcare, traditional and complementary medicine, and allied health services provided to foreigners, on service providers exceeding the RM1.5 million threshold.
Services directly impacting Malaysians such as public and some private healthcare will continue to be exempted from the service tax.