Malaysia to prioritise wage growth over GST return after OECD call

KUALA LUMPUR, 29 JULY 2026 —

Putrajaya will focus on raising household incomes and widening the tax base before considering a return to the goods and services tax, Economy Minister Akmal Nasrullah Mohd Nasir said on Tuesday.

Akmal said the government’s immediate priority is tackling stagnant wages while designing tax reforms that broaden revenue without undermining growth. “For the country at this moment, the priority is to address the structural issues surrounding wages and people’s incomes,” he said.

The OECD, in its latest survey, urged Malaysia to strengthen its fiscal position by reintroducing a broad-based consumption tax and compensating lower-income households through targeted cash transfers. The Paris-based body argued that expanding the existing sales and service tax is not the most efficient way to tax goods and services, noting tax revenues below 13% of GDP leave limited room to fund education, social protection and public investment.

Beyond reintroducing the GST, the OECD recommended broadening the personal income tax base by streamlining deductions, limiting exemptions and taxing more capital income, alongside stronger tax administration.

During a separate session, OECD director of country studies Luiz de Mello said a value-added tax is better suited to Malaysia’s open economy because it avoids cascading taxes along the production chain and supports competitiveness. “The beauty of value-added taxes is that they don’t burden enterprises throughout the value chain,” he said. “For an economy that is so open to trade, a tax system that supports competitiveness is more efficient.”

De Mello noted that all but one OECD member already use a VAT and called it “the most modern tax for consumption.” He added that Malaysia is now better placed to implement such a tax because its digital tax infrastructure, bolstered by e-invoicing, has improved. “Malaysia already relies heavily on e-invoice, so you have a digitalised tax administration that makes it much easier to implement this type of taxation,” he said.

The OECD forecast Malaysia’s economy to expand 4.9% in 2026 and 5.0% in 2027, driven by resilient domestic demand and continued investment despite risks from trade tensions, higher commodity prices and weaker global demand. Inflation is projected to average 2.1% in 2026 and 2.3% in 2027, while unemployment is expected to ease to 2.9% in 2026 from 3.0% in 2025 and to 2.8% in 2027.

The fiscal deficit is projected to narrow to 4.0% of GDP in 2026 from an estimated 4.3% in 2025, then to 3.8% in 2027. Federal government debt is expected to remain around 65% of GDP.