M'sia's tax-to-GDP ratio lags behind regional peers: Treasury sec-gen

Summary

• Johan notes Malaysia’s relatively weak tax base, says that the country’s tax-to-GDP ratio stands at just 12.5pct, with only Indonesia collecting less among regional economies.

• The Treasury sec-gen says authorities have stepped up raids, enhanced port scanning, and plans for e-invoicing implementation to address segments of society not paying taxes.

Malaysia's tax-to-gross domestic product (GDP) ratio remains significantly below regional standards at just 12.5 percent, with only Indonesia collecting a lower proportion relative to economic output, Treasury secretary-general Johan Mahmood Merican said.

Speaking on the country’s tax collection performance, Johan acknowledged that Malaysia’s tax base is “relatively low” compared to neighbouring economies, with Singapore achieving 15 percent of GDP and countries like Thailand and Vietnam exceeding that benchmark.

“I think the broader issue, which maybe I should address, is that Malaysia still has a relatively low tax-to-GDP ratio.

“So, if you look at tax to GDP, both in 2023 and 2024, we only had about 12.5 percent of GDP. In this region, only Indonesia is lower, and that is also slightly lower than Malaysia,” Johan stated in an interview with Malaysiakini.

He acknowledged that Malaysia collects less tax than regional peers, but said that this is a deliberate policy to stay competitive, without “unduly burdening both the rakyat and businesses.”

He said that the government’s focus now is to “plug leakages that are still within our system”, as it works to bring Malaysia’s tax collection performance closer to regional standards.

When pressed for estimates on the scale of tax leakage, Johan said that detailed data on the extent of the problem remains unavailable.

Grey economy issues

Johan said that Malaysia also faces challenges in terms of the grey economy, or “those with compliance issues”.

“That certainly is one of the focus areas. I think even the prime minister has asked us to give special focus,” Johan said, referring to segments of the society which are still not paying their due taxes.

He said that the enforcement drive has become increasingly visible, with more raids by tax collection agencies, enhanced scanning of imported goods at ports, and a broader crackdown on tax evaders making headlines.

Johan said that the government is also banking on its e-invoicing system as a key tool to combat tax leakage, viewing it as essential to addressing compliance gaps in the system.

The Inland Revenue Board (IRB) postponed the e-Invoice implementation for mid-tier taxpayers, announcing on June 5 that businesses with annual turnover between RM1 million and RM5 million will begin compliance from Jan 1, 2026.

The tax authority also confirmed that smaller taxpayers with annual income or sales below RM500,000 remain entirely exempt from the e-Invoice system.

“The implementation phase for taxpayers with annual income or sales up to RM1 million has been postponed to July 1, 2026,” Bernama reported the IRB saying.

The deferral follows government recognition of the significant challenges facing taxpayers, particularly micro, small, and medium enterprises, in meeting e-invoice legal requirements.

Officials acknowledged these businesses require substantial preparation time, given the complex implementation hurdles they encounter.

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