World Bank Urges Malaysia to Raise Revenue Without Increasing Tax Rates

Malaysia needs to strengthen tax reforms and raise government revenue without necessarily increasing existing tax rates, according to the World Bank. Lead economist Apurva Sanghi said Malaysia’s tax revenue-to-GDP ratio has fallen from 15 per cent to 12.7 per cent over the past 15 years.

He said the decline comes as federal government debt has reached 65.2 per cent of GDP, while debt-servicing costs continue to increase. 

World Bank Says Malaysia Can Improve Tax Collection Through Structural Reforms

Sanghi said the government could increase revenue by simplifying the corporate tax system, particularly for small and medium enterprises, while encouraging successful SMEs to expand.

He also suggested reforms that would make the tax system more supportive of investment by allowing businesses to fully account for qualifying investment costs.

The World Bank’s recommendations come ahead of Budget 2027 as Putrajaya works to strengthen its fiscal position. Sanghi noted that 17 sen from every ringgit of government revenue is currently spent on servicing debt.

The Auditor-General’s Report also showed federal government debt increased from RM1.24 trillion in 2024 to RM1.32 trillion in 2025. The World Bank said fiscal reforms will be important to place Malaysia’s debt on a more sustainable path.