Malaysia’s petroleum revenue will drop to 18.3% of federal revenue next year

KUALA LUMPUR, 25 AUGUST 2026 —

Malaysia’s Petroleum Revenue Share to Shrink to 18.3% of Federal Income in 2025

The anticipated RM62 billion in petroleum income—equivalent to 3% of gross domestic product (GDP)—will be led by dividends from state-owned energy giant Petronas, which alone is expected to contribute RM32 billion. This follows contributions from Bank Negara Malaysia (RM4 billion) and sovereign wealth fund Khazanah Nasional (RM2 billion). The decline continues a long-term trend that began in 2009, when petroleum revenue accounted for 41.3% of federal income.

The projected drop reflects expectations of lower global crude oil prices and reduced petroleum income tax (Pita) collections, estimated at RM20.7 billion for 2025. In contrast, non-petroleum revenue is forecast to rise by 7.2% to RM277.7 billion, signaling progress in diversifying the government’s income sources.

Direct tax collections are expected to grow by 6.6% to RM188.8 billion, with corporate income tax (Cita) projected to reach RM106.5 billion—the largest contributor. Individual income tax is anticipated to rise to RM44 billion, driven by job market stability and salary increases for civil servants. Indirect taxes are set to increase by 9.8% to RM70.2 billion, with the sales and service tax (SST) contributing RM46.7 billion, or 66.5% of the total. Excise duties are projected to climb to RM13.8 billion.

Non-tax revenue, however, is expected to dip slightly by 0.4% to RM80.7 billion, primarily due to lower investment income. Revenue from licences and permits—including foreign worker levies and motor vehicle licences—is projected to see a modest increase.

Overall, the government’s total revenue is forecast to rise by 5.5% to RM339.7 billion in 2025, supported by economic growth and ongoing reforms to strengthen tax collection. The shift away from petroleum dependence underscores Malaysia’s efforts to build a more resilient and diversified fiscal base.

Regional and Domestic Implications

The declining share of petroleum revenue highlights Malaysia’s vulnerability to global oil price fluctuations, a concern shared by other oil-dependent economies in Southeast Asia. While the government’s diversification strategy appears to be gaining traction, analysts warn that sustained revenue growth will depend on continued economic expansion and effective implementation of tax reforms.

Petronas, as the primary contributor to petroleum-related income, remains a critical pillar of Malaysia’s fiscal framework. The company’s dividend payments—expected to total RM32 billion—will play a key role in balancing the budget amid rising expenditure pressures.

Bank Negara Malaysia and Khazanah Nasional, contributing RM4 billion and RM2 billion respectively, will also provide support to federal finances. Their dividends, alongside proceeds from licences and permits, help offset the decline in petroleum revenue while funding public services and development projects.

Stakeholder Perspectives

A finance ministry official, speaking on condition of anonymity, said the revenue projections reflect "prudent fiscal planning" and the government’s commitment to reducing dependence on volatile oil prices. "The shift toward non-petroleum revenue sources is a strategic move to ensure long-term fiscal sustainability," the official said.

Petronas did not respond to requests for comment on its dividend outlook. However, industry analysts noted that the company’s contributions remain despite the declining revenue share. "Petronas continues to be a major enabler of Malaysia’s economic growth, not just through dividends but also through investments in domestic infrastructure and technology," said an economist at a local research institute.

Forward Outlook

Looking ahead, the government’s ability to meet its revenue targets will hinge on several factors, including global oil price trends, the pace of economic recovery, and the effectiveness of tax administration reforms. The projected growth in corporate and individual taxes suggests improving compliance and economic activity, but risks remain.

For Malaysia, the transition away from petroleum revenue is a gradual process. While the 2025 outlook shows progress, policymakers will need to maintain momentum in diversifying income sources to safeguard fiscal stability in an uncertain global environment.

The government’s commitment to reform, as reflected in the 2025 fiscal projections, signals a long-term strategy to build a more balanced and resilient economy—one less exposed to the volatility of commodity markets.

Related: Petronas · Bank Negara Malaysia · Kuala Lumpur