KUALA LUMPUR (Oct 18): The federal government expects to hit a fresh record high of RM339.71 billion in 2025, up 5.5% against a revised estimate of RM322.05 billion in 2024, driven by an increase in both direct and indirect tax collection, according to the Ministry of Finance’s (MOF) 2025 Fiscal Outlook and Federal Government Revenue Estimates.

Total government revenue has been steadily rising since it dipped almost 15% in 2020, with the biggest jump in 2022 — a 25.9% year-on-year growth. Prior to that, revenue peaked at RM264.42 billion in 2019.

While total government revenue has been on an uptrend over the past decade, its share to the country's gross domestic product (GDP) is expected to be at 16.3% in 2025, compared with 16.5% in 2024. The ratio has never exceeded 18% since 2015, raising concerns over debt reliance to support fiscal requirements.

On this, the MOF said the government will continue to strengthen its revenue management while enhancing efficiency through the use of technological advancements and innovative approaches.

"These initiatives aim to streamline tax administration by improving service delivery and simplifying processes, thereby facilitating tax compliance," it said.

According to the MOF’s 2025 Fiscal Outlook and Federal Government Revenue Estimates, the growth in tax collection in 2025 will be supported by sustained economic growth and higher corporate earnings, coupled with the phased roll-out of the e-Invoice as well as full-year implementation of the higher service tax rate and anticipated higher consumer spending.

Tax revenue, projected at RM259 billion, will fall to 12.4% of GDP, from 12.6% in 2023. This is significantly lower than the regional average of 25% (the World Bank’s estimate).

Companies’ income tax will remain the largest contributor at RM106.5 billion in 2025, while individual income tax is projected to increase 7.8% to RM44 billion, in line with the stable job market and improved wages.

In addition, the MOF said the increase in salaries for civil servants is expected to have a positive impact on the collection of individual income tax, with more civil servants to be included in the taxable bracket.

However, petroleum income tax is projected to record a lower collection of RM20.7 billion, in anticipation of lower crude oil price. 

Similarly, non-tax revenue is projected to drop 0.4% to RM80.7 billion on account of lower proceeds from investment income.

The dividend from Petroliam Nasional Bhd (Petronas) is expected to remain at RM32 billion, the same amount projected for 2024. This is lower than the RM40 billion recorded in 2023 and RM50 billion in 2022.

Meanwhile, Bank Negara Malaysia and Khazanah Nasional Bhd are expected to contribute dividends of RM4 billion and RM2 billion, respectively, in 2025.

On top of that, a total of RM4 billion is anticipated from Retirement Fund (Inc), or KWAP, to partly finance the retirement charges of RM40.56 billion in 2025.

In 2025, petroleum-related revenue is expected to register a lower collection of RM62 billion or 18.3% to total revenue, contributing to 3% of GDP, with Petronas dividends accounting for more than half of the total.

In contrast, non-petroleum revenue is expected to rise by 7.2% to RM277.7 billion, reflecting the government's efforts to diversify revenue on the back of a favourable economic outlook.

"The government will continue to ensure sustainable non-petroleum revenue generation to meet expenditure commitments, particularly to serve the needs of the rakyat," the MOF said.   

Click here to read more about the Economic Report 2024/2025.