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A RENEWED national debate over Malaysia’s taxation framework has intensified concerns about fiscal sustainability, economic competitiveness and widening inequality, with economists warning that excessive reliance on high-income earners could create long-term risks for growth and investment.
The discussion comes amid increasing scrutiny of whether the country’s highest earners, particularly households within the T20 income bracket, are carrying a disproportionate share of the national tax burden at a time of rising living costs and slowing global growth.
Economists say the issue extends beyond simple questions of taxation and touches on broader structural concerns involving productivity, government spending, subsidy reforms and income inequality.
Economist Geoffrey Williams told the New Straits Times that Malaysia’s wealthiest households already contribute the overwhelming majority of personal income tax revenue, making repeated calls for higher taxation politically attractive but economically risky.
“It is always attractive for politicians to target the rich for higher taxes because it seems socially fair and people envy the rich, so they like to see them pay.
“Nonetheless, the rich already pay the largest share of tax.
“The richest 15 per cent of people pay 80 per cent of total individual income tax, while those earning below RM100,000 per year contribute only 14 per cent,” he told Business Times.
Williams warned that higher taxation on wealthy individuals and businesses could eventually reduce overall revenue collection by discouraging entrepreneurship, investment and skilled labour retention.
“The basic economics of taxing the rich tell us that the more you tax them, the less you get in revenue because they find ways to avoid the taxes or high taxes act as a disincentive to work.
“They may also leave for low-tax countries, so you lose entrepreneurs and highly qualified talent.”
He argued that Malaysia should move beyond recurring debates surrounding wealth taxes, income taxes and the long-running dispute between the Sales and Services Tax (SST) and the Goods and Services Tax (GST).
Instead, Williams proposed exploring alternative taxation models, including a low-rate electronic payments tax targeting the country’s rapidly expanding digital economy.
He estimated that a one per cent levy on electronic transactions could generate up to RM28 billion annually due to the vast size of the digital payments ecosystem.
“This tiny tax works because it has a huge tax base of all transactions. It’s easy to collect through point-of-sale technologies.
“It is difficult to avoid or cheat, and because it is so small, people hardly notice it, and so it does not distort buying behaviour as much as other taxes.”
Williams also pushed back strongly against renewed calls for the reintroduction of GST, arguing that the tax ultimately places greater pressure on lower-income households despite its stronger revenue-generating capacity.
“We must stop the repeated demand for GST.
“People must understand that GST only raises more revenue because more people, especially the poor, pay it and it covers more products than SST.
“People must also understand that businesses prefer GST because they do not pay it.
“They reclaim it. Ultimately, consumers are worse off under GST, especially those on low income.”
Meanwhile, economist Oh Ei Sun said the tax debate risks overlooking deeper structural weaknesses that continue to affect Malaysia’s economy and social stability.
He pointed to widening wealth disparities and inefficient government spending as two of the country’s most pressing long-term challenges.
“The first is the widening wealth gap that pits the haves against the have-nots in not just taxation but also other socioeconomic concerns, such as crime and public health.”
Oh said Malaysia must focus on raising incomes more broadly through stronger education systems, vocational training and improved workplace productivity if it hopes to narrow inequality and compete more effectively with regional economies such as Vietnam.
He also argued that stronger fiscal discipline and reduced dependence on subsidies were essential to improving public finances.
According to Oh, the government could reduce pressure for higher taxes by improving spending efficiency, streamlining regulations and intensifying anti-corruption efforts to curb leakages.
“In short, improve training and education, adjust working attitudes, reduce unnecessary subsidies and regulations, and strengthen the fight against corruption,” he said.
Separately, Mohd Sedek Jantan of IPPFA Sdn Bhd questioned whether Malaysia’s current definition of the T20 income category accurately reflects financial realities in major cities such as Kuala Lumpur.
He said using gross household income alone as the benchmark for defining wealth was increasingly outdated, particularly given significant differences in living costs between urban and rural areas.
“This matter requires deeper scrutiny because any form of subsidy rationalisation will usually trigger social sensitivities and perceptions of inequality, particularly when the cost of living remains high in major urban areas.
“In this context, effective policy communication becomes a critical element.
“It ensures the public understands that the main goals are not merely short-term fiscal savings, but to strengthen the efficiency of the country’s economic resource allocation in a more sustainable manner,” he said.
Sedek proposed introducing subcategories within the T20 group to ensure that subsidy rationalisation measures are more accurately targeted and do not unintentionally burden households facing high urban living expenses despite technically qualifying as top earners.
“As an example, the government could consider excluding subsidies only for individuals earning above RM25,000 per month.
“Such an approach would not only be more targeted, but could also reduce the risk of a shock to domestic consumption, given that very high-income groups generally have a greater capacity to absorb higher fuel costs,” he said.
Economists broadly agreed that any future reform of Malaysia’s tax system would require careful balancing between fiscal sustainability, economic competitiveness and social equity, particularly as household spending remains a crucial driver of national growth amid continuing global uncertainty. - May 12, 2026
