Malaysia is on the brink of achieving high-income status, but there’s a catch—our economy isn’t built to sustain the dream. The World Bank has issued a wake-up call: our tax system is outdated, our revenues are low, and our social spending is constrained. If Malaysia wants to play in the big leagues, we need to fix our tax structure before inequality tightens its grip on the nation.
The Revenue Problem: Where’s the Money?
Despite its ambitions, Malaysia collects less revenue than even low middle-income countries (LMICs). That’s an alarming statistic for a country that wants to compete with high-income nations. The World Bank’s report, A Fresh Take on Reducing Inequality and Enhancing Mobility in Malaysia, reveals that our public revenue levels lag behind not just upper middle-income countries (UMICs) but also lower-income peers.
The result? Malaysia lacks the fiscal space to invest in crucial sectors like education, healthcare, and social protection. Without these investments, economic mobility remains sluggish, and inequality becomes a chronic issue. The World Bank is clear: without tax reforms, Malaysia will continue to struggle in narrowing the wealth gap and ensuring equitable progress.
The Stalled Fight Against Inequality
Let’s talk about income inequality. Between 1970 and 2022, Malaysia made significant strides in reducing wealth disparity. However, in recent years, that progress has slowed to a crawl.
Measured by the Gini index, Malaysia’s inequality rating dropped from 45 in 2004 to 40 in 2014. But by 2019, it had stagnated, and even in 2022, the number barely budged—sitting at 39. That’s still higher than the advanced economies we aspire to emulate.
What does this mean? The rich are getting richer, and the middle class is struggling to keep up. While the high-income threshold may soon be within Malaysia’s reach, it will remain out of grasp for most citizens. The World Bank highlights that in 2022, almost two-thirds of Malaysians earned less than the high-income cut-off. In simple terms, Malaysia might become “high-income” on paper, but for the average citizen, the reality will feel much different.
The Tax System: Broken and Outdated
Malaysia’s tax structure is at the heart of this problem. The country relies heavily on direct taxation, but here’s the kicker—capital incomes are not taxed. At the same time, personal income tax (PIT) contributes to less than 3% of the GDP, far lower than global benchmarks.
The World Bank argues that our PIT needs to be more progressive. Wealthier individuals should pay a fairer share, while tax thresholds should be adjusted to ensure those who can afford to contribute more actually do so. By lowering taxable income thresholds and applying higher rates at the top income brackets, Malaysia could generate an additional RM2.5 billion to RM2.8 billion in 2024. Introducing a cap on tax reliefs could bring in another RM1.1 billion.
These reforms wouldn’t just boost government revenue—they would actively help reduce inequality by ensuring that the wealthiest Malaysians bear a larger responsibility for funding public services.
The High-Income Illusion
Even after Malaysia reaches high-income status, the work isn’t over. The country will still be playing catch-up with more advanced economies. Deglobalisation, shifting trade patterns, an aging population, and climate change will all pose serious challenges.
To truly cement its place as a high-income economy, Malaysia needs to increase public spending on capital and productivity. This, in turn, would improve wages and boost economic mobility. But without tax reforms, the government will lack the funds to make these critical investments.
The Hard Truth: No Progress Without Reform
The writing is on the wall. If Malaysia wants to transition from an aspiring high-income nation to a truly developed economy, it must fix its tax system. The government cannot afford to tiptoe around tax reforms any longer.
Higher revenues mean better infrastructure, improved social protection, and a fairer economic landscape. Without these, Malaysia risks becoming a nation where economic growth benefits only the elite, while the majority remain stuck in financial uncertainty.
It’s time to make a choice: do we continue patching up a flawed system, or do we build a tax framework that ensures sustainable and inclusive growth for all Malaysians? The answer should be clear.
Shamini Daniel is a content creator under the Newswav Creator programme, where you get to express yourself, be a citizen journalist, and at the same time monetize your content & reach millions of users on Newswav. Log in to creator.newswav.com and become a Newswav Creator now!
The User Content (as defined on Newswav Terms of Use) above including the views expressed and media (pictures, videos, citations etc) were submitted & posted by the author. Newswav is solely an aggregation platform that hosts the User Content. If you have any questions about the content, copyright or other issues of the work, please contact Newswav.
