PUTRAJAYA: Malaysia now has the digital infrastructure needed to support the reintroduction of the Goods and Services Tax (GST), with the rollout of e-invoicing and a digitalised tax administration addressing many of the administrative challenges previously associated with the tax, according to the Organisation for Economic Co-operation and Development (OECD).
OECD economics department director country studies branch Luis de Mello said concerns that implementing a modern value-added tax (VAT), of which GST is a form, would be administratively difficult were no longer as relevant because Malaysia had significantly strengthened its digital tax infrastructure.
“Malaysia already has much of what it needs to implement a modern value-added tax (VAT). With e-invoicing and a digitalised tax administration, the country is well positioned to do so,” he said during a panel discussion after the launch of the OECD Economic Survey of Malaysia 2026 here today.
De Mello said a VAT was more efficient than the current Sales and Service Tax (SST) because it avoided cascading taxes across the production chain, making it better suited to an open, trade-oriented economy such as Malaysia.
“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, where competitiveness is so important, a tax system that is more conducive to competitiveness is a more efficient one.”
He said strengthening Malaysia’s revenue base would become increasingly important to finance a broader social safety net, climate action and future skills development, noting that the country’s revenue-to-GDP ratio remained below 13%.
“When you see Malaysia with a revenue-to-GDP ratio of less than 13%, it is rather low by comparison with other countries that have a much more comprehensive social safety net,” he said.
De Mello said Malaysia also had the tools to better protect lower-income households should a VAT be introduced, citing Pangkalan Data Utama (PADU) and other databases.
“You have PADU and other mechanisms. Malaysia now has a much better socio-economic picture of the population than it used to have. Since you have the tools, go the next step.”
He also urged Malaysia to continue rationalising fuel subsidies, saying they strained public finances while slowing the energy transition.
“Fuel subsidies are not only about pressure on public finances. They also discourage the energy transition, and international experience shows they are not a very effective instrument to cushion vulnerable households from energy price shocks,” he said.
Resources currently spent on fuel subsidies could instead be channelled into education, infrastructure and stronger social protection, he added.
