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SHAH ALAM – The median monthly wage of a formal-sector worker in Malaysia was RM3,027 in March 2026, meaning half the country's workforce brought home less than that each month.
That figure sits at the centre of why economists say any move to broaden Malaysia's consumption tax base must be handled carefully and why the question of whether to return to Goods and Services Tax (GST) is not simply a fiscal one, but a social one.
Economist Professor Emeritus Dr Barjoyai Bardai said at the current income level, the existing SST framework remained more manageable for most households precisely because it could be targeted at specific goods and services rather than applied broadly across a much larger range of transactions.
"From the perspective of short-term household affordability, the present SST framework is politically and socially easier to manage," he said.
However, he was quick to add that easier to manage was not the same as economically superior.
He said GST remained a more efficient instrument because it taxed value added through the supply chain, provided input-tax credits to businesses and made it far harder for transactions to be hidden from the tax authority.
"Sales and Service Tax (SST) may be more suitable for Malaysia's current social and cost-of-living conditions, but GST principles may be more suitable for Malaysia's long-term fiscal and economic efficiency," he told Sinar Daily.
If Malaysia were to move towards incorporating GST features into its tax system, Barjoyai outlined six safeguards he said were essential to protect ordinary households from bearing a disproportionate burden.
The first was to keep the initial rate low, prioritising public acceptance and compliance before revenue maximisation, drawing on lessons from Malaysia's previous GST experience when perceptions of rising prices eroded public support for the tax even where it was economically sound.
The second was to protect low-income households through targeted cash transfers rather than blanket exemptions on goods and services, a distinction he said mattered because broad exemptions tended to benefit higher-income households more in absolute monetary terms.
The third was to use revenue from broader consumption taxes to strengthen progressive elements elsewhere in the tax system, combining wider consumption taxation with stronger targeted transfers and progressive income taxation to offset its inherently regressive character.
"Consumption taxes are inherently capable of being regressive because lower-income households generally spend a larger proportion of their income on consumption. Progressivity must therefore be created through the overall tax-and-transfer system," he said.
The fourth safeguard was transparency, a clear and publicly visible mechanism showing where additional tax revenue was being spent, whether on healthcare, education, public transport, childcare, housing or cash assistance.
"People are much more likely to accept taxation when they can see a clear connection between the tax paid and the public services received," he said.
The fifth was strong anti-profiteering enforcement to prevent businesses from using any tax change as cover for price increases beyond the actual tax amount, an issue Barjoyai said required effective competition enforcement and transparent price monitoring.
The sixth safeguard was a simple, digitally driven compliance system for businesses, especially small and medium enterprises (SMEs), built around straightforward registration, fast refunds, automated invoicing and minimal paperwork.
He said this was one of the clearest lessons from Malaysia's earlier GST experience, where compliance costs had been a significant burden for smaller businesses and refund delays had undermined confidence in the system.
"The government should use Malaysia's digitalisation capabilities to make the tax system simpler than the old GST, not merely recreate it," he said.
For Barjoyai, the ultimate test of any reform was straightforward.
"Given that the median formal-sector wage is only around RM3,000 a month, Malaysia's immediate priority should be to increase the tax base without substantially increasing the tax burden on the median household.
"That, in my view, is the real test of whether a GST-SST reform is progressive," he said.
Economist and policy specialist Dr Geoffrey Williams went further, saying even a well-designed GST would remain regressive at its core because its burden fell almost entirely on consumers rather than businesses.
He said the more fundamental problem was that both GST and SST were designed for an earlier economic era and that Malaysia should be looking at entirely new instruments suited to the digital economy.
His proposal was an electronic payments tax, a fraction-of-a-per cent levy on every electronic transaction that he said could generate tens of billions of ringgit without most consumers noticing the deduction at all.
"In a world where most people are using e-payments, we need new taxes, not SST or GST, which are old-style taxes not fit for purpose in the current business environment," he said.