Malaysia weighs new consumption tax model to replace SST

Malaysia's government is exploring a revamp of its consumption tax system, potentially blending elements of the goods and services tax (GST) with the current sales and services tax (SST), Prime Minister Anwar Ibrahim said on Tuesday.

Speaking at a finance ministry event, Anwar — who also serves as finance minister — described the GST as the most transparent and efficient method of tax collection. However, he expressed concern about its impact on the poorest households, especially amid rising poverty and living costs.

"So we need to see how we can combine these two systems to find a new way to determine a more progressive and efficient taxation system," he said. "It is a major challenge, it has to be done. But it is not simple... with rising poverty rates and rising costs of living."

Malaysia scrapped the 6% GST in 2018 after public backlash over cost-of-living pressures, replacing it with the narrower SST. Analysts have since urged the government to bring back the GST to meet fiscal targets, but Anwar said the current SST regime has weaknesses that make it unsustainable.

The government had previously stated in 2024 that it had no plans to reintroduce GST as an alternative to removing fuel subsidies. Instead, it introduced a quota system for subsidised RON95 petrol last year, part of a broader shift toward targeted aid.

In a pre-budget statement released Tuesday, the finance ministry said targeted subsidies have generated savings of about 15.5 billion ringgit ($3.8 billion) annually, helping offset higher energy costs linked to the Middle East conflict.

The 2027 federal budget is scheduled to be tabled in parliament on October 9. The ministry said the budget will focus on ten priority areas, including narrowing regional development gaps, easing cost-of-living pressures, and boosting investment growth.