IN line with the principles of the Ekonomi Madani framework to secure a strong foundation for growth and contribute to the country's prosperity, the government is committed to broadening the tax base in the medium and long term, while ensuring equitable income redistribution to the rakyat.
These revenue reforms signify a strategic shift towards a more progressive tax structure and the digital transformation of tax administration in strengthening compliance.
This shift stems from the recognition that tax compliance is an essential foundation of revenue collection.
However, compliance should not be viewed solely as the fulfilment of statutory obligations but also represents a broader commitment by taxpayers to uphold their responsibilities within the tax system and contribute fairly towards the financing of national development.
Effective tax compliance encompasses the accurate declaration of income and transactions, timely submission of information, appropriate payment of taxes and the maintenance of reliable and complete records to facilitate effective tax administration.
The Federal government’s revenue is mainly concentrated with tax revenue, constituting a share of around 70% from overall revenue.
Historically, tax revenue to gross domestic product (GDP) ratio recorded a peak high of almost 20%, when the country experienced a fiscal surplus, before demonstrating a downward trend over the subsequent years and a sharp decline during the pandemic in 2020.
Tax revenue as a percentage to GDP started to normalise and was recorded at 11.6% in 2022.
Revenue performance cannot rely solely on cyclical improvements in economic activities although economic growth remains the principal driver of revenue collection.
A sustainable fiscal position requires a broader and more diversified tax base, supported by an effective administration and a higher level of compliance.
To this end, the government has undertaken a series of revenue reforms since 2023 to strengthen tax administration, improve compliance and widen the tax base, lifting tax revenue to 12.6% of GDP.
These reforms are aimed at enhancing the efficiency and transparency of the tax system while ensuring economic activities are adequately incorporated and contribute to the Federal Government's revenue.
Meanwhile, the implementation of e-Invoice represents a major transformation in Malaysia's tax administration.
It is designed to digitalise business transactions and provide the Inland Revenue Board of Malaysia (IRB) with real-time and structured information on commercial activities.
The IRB has identified key benefits of e-Invoice which include improved transparency in income reporting, enhanced tax compliance and reduced revenue leakages arising from unreported or manipulated transactions.
The e-Invoice establishes a more connected information environment in which transactions of data can be validated and transmitted through the Government's digital infrastructure. In this respect, e-Invoice represents a more proactive and data-driven tax administration.
As part of ongoing efforts to strengthen domestic revenue mobilisation and support fiscal consolidation, the Government revised the service tax rate from 6% to 8% beginning 1 March 2024 excluding telecommunication, food and beverages, parking as well as logistics services, which remained at 6%.
This approach was intended to strengthen revenue collection while mitigating the impact on widely consumed services and essential economic activities.
Beyond the broadening revenue base strategy, positioning Malaysia as a competitive, globally integrated and preferred investment hub is also important to promote sustained economic growth that underpin long-term macro-fiscal stability.
The continued pursuit of tax reform, digital transformation and governance improvements will therefore remain integral to Malaysia's efforts in building a resilient, inclusive and sustainable fiscal framework that supports long-term national development and the well-being of the rakyat.
