This article first appeared in The Edge Malaysia Weekly on May 4, 2026 - May 10, 2026

MALAYSIA’S tax haul surged to a record level in 2025, surpassing the RM200 billion mark for the first time. The Inland Revenue Board of Malaysia (IRB) said direct tax collection rose 10.38% year on year (y-o-y) to RM203.99 billion, exceeding the Ministry of Finance’s (MoF) estimate.

This follows a separate announcement by the Royal Malaysian Customs Department in January that indirect tax revenue reached a record RM76.18 billion, also surpassing the target set by MoF.

Direct taxes, largely from individual, corporate and petroleum income, make up slightly over 50% of total federal government revenue each year, while indirect taxes, including sales and service tax, excise duties and trade levies, contribute just over 20%. The remaining portion comes from non-tax sources such as licences, permits and investment income from government-linked entities including Petroliam Nasional Bhd (PETRONAS) and Bank Negara Malaysia.

The respective agencies did not provide a breakdown of the tax collected, but tax professionals attribute the stronger revenue performance to a combination of new tax measures and macroeconomic factors. Measures introduced in 2025 — including broader sales and service tax coverage and a new 2% tax on dividend income above RM100,000 — expanded the tax base. At the same time, the implementation of e-invoicing has enhanced transparency and reporting efficiency, improving compliance.

The IRB said it leveraged e-invoice data to identify discrepancies and issued “nudges” to prompt voluntary disclosure. As a result, 38,906 taxpayers filed returns declaring RM3.5 billion in income, generating RM760.7 million in tax payable.

“It definitely helped to boost revenue. People generally become more compliant because of the fear of being monitored,” a tax consultant tells The Edge.

It is worth highlighting that the 2% tax on dividend income exceeding RM100,000 annually was introduced for individuals in 2025. 

For indirect tax, the expansion of the scope of sales and services tax made significant contribution to the numbers. Under the expanded sales tax scope, tax on selected discretionary items were increased to 5% and others to 10%.

Furthermore, service tax was introduced on six new categories of services — leasing and rental, construction services, financial services, private healthcare services to non-citizens, education services and beauty services.

Another tax consultant believes that the higher direct tax collected could also be attributed to the minimum effective tax rate of 15% for large multinationals with a global revenue of more than €750 million annually.

“They have enjoyed tax incentives for many years, with some having an effective tax rate of 7% or lower. So now that it is at a minimum rate of 15%, I believe that will contribute to Malaysia’s tax revenue,” he notes.

Malaysia’s full-year 2025 gross domestic product growth hit 5.2% y-o-y, higher than 2024’s 5.1% growth and well ahead of the government’s official forecast range of 4% to 4.8%.

As tax collection and economic growth are correlated to a certain extent, it is then also expected that the robust economic growth Malaysia recorded in 2025 would mean that taxpayers are making more income and thereby contributing more to the government’s federal coffers.

Foreign investment provided further support. The Malaysian Investment Development Authority or Mida reported foreign investments of RM207.1 billion, up 20.9% from 2024, driven in part by rapid data centre development. Spillover effects benefited construction and technology-related sectors, contributing to higher corporate earnings and, in turn, tax revenue, notes a tax consultant.

Together, policy tightening, digital enforcement and robust economic activity have strengthened Malaysia’s fiscal position, underscoring how structural reforms and growth momentum can reinforce revenue collection.

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