Fiscal reform to balance fiscal sustainability, social equity - Treasury Sec-Gen

The Sun

4 hours ago

KUALA LUMPUR: The government's fiscal reform initiatives, including expanding the Sales and Services Tax (SST) scope and rationalising electricity and diesel subsidies, are aimed at ensuring fiscal sustainability while protecting lower-income groups and essential sectors.
Treasury secretary-general Datuk Johan Mahmood Merican said 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.
He said that what has gained some attention in recent weeks is the SST, and the idea is to approach it in a more targeted manner, which Prime Minister Datuk Seri Anwar Ibrahim said reflects the spirit of social protection.
'How do we then try to approach it more progressively? It is the government that needs to provide additional funding.
'We need to increase our tax base as our tax-to-GDP (ratio) is about 12.5 per cent, which is amongst the lowest in this region,' he said during a session titled 'Social Safety Nets: Securing the Future' at the Sasana Symposium 2025, hosted by Bank Negara Malaysia today.
Johan said there is room to increase the tax base for the sustainability of expenditure, as well as growing demands for social protection and basic infrastructure.
Thus, he said there is a need to increase the tax base in a progressive manner, where the government must ensure that basic daily goods are not subject to higher SST.
He also noted that from an equity standpoint, it appears highly counterintuitive to allocate the same amount of assistance to both low-income and high-income individuals.
As such, the government typically adopts a more targeted approach as part of its broader reform agenda to ensure that aid reaches those who need it most.
He noted that the government allocated RM10 billion for Sumbangan Tunai Rahmah (STR) in 2024, and this year, the allocation has increased to RM13 billion, which also includes another aid assistance programme called Sumbangan Asas Rahmah (SARA).
Meanwhile, he stated that while a progressive wealth tax is intellectually appealing and aligned with Islamic principles such as zakat, it presents major challenges in terms of administration, enforcement, and data availability.
He explained that income and consumption taxes are easier to manage due to the regular and traceable transactions, whereas wealth is harder to assess and value.
'I mean, it is very Islamic because zakat, in a sense, is based on wealth. But I think the real challenge -- and it is not just a Malaysian issue but also a global issue -- is that it is quite challenging to administer a wealth tax compared to an income tax,' he added.