PUTRAJAYA (July 28): Economy Minister Akmal Nasrullah Mohd Nasir said Malaysia will prioritise raising wages and expanding the tax base before considering a goods and services tax (GST) return, following the Organisation for Economic Co-operation and Development’s (OECD) recommendation for a broader consumption tax.

Akmal said only about 15% of Malaysia's workforce currently pays income tax, underscoring the need to address the country's structural wage issues before introducing broader taxes that could weigh on household consumption.

"While we respect the view from OECD, at the same time, I think what's more important is how to broaden our tax income," he said during a press conference after the launch of the latest OECD Economic Survey of Malaysia on Tuesday. "Without the higher pay or better wages, then whatever tax that we introduce may have some repercussions in terms of what people consume or what people earn."

The minister said the government's immediate priority is to tackle the structural issue of stagnant wages while considering tax reforms that can broaden revenue collection without undermining economic growth.

"For the country at this moment, the priority is to address the structural issues surrounding wages and people's incomes," he said.

The OECD, in its latest economic survey on Malaysia, urged the government to strengthen its fiscal position by reintroducing a broad-based consumption tax while compensating lower-income households through targeted cash transfers.

The organisation argued that expanding the scope of the sales and service tax (SST) is not the most efficient way to collect taxes on goods and services while tax revenues of below 13% of gross domestic product (GDP) leave Malaysia with limited fiscal space to fund higher spending on education, social protection and public investment.

Beyond reintroducing the GST, the OECD also recommended broadening the personal income tax base by streamlining deductions, limiting exemptions and taxing a wider range of capital income, alongside further strengthening tax administration.

Earlier during a fireside chat session, OECD director of country studies Luiz de Mello said a value-added tax is better suited to an open economy like Malaysia because it avoids cascading taxes throughout the production chain, making businesses more competitive.

"The beauty of value-added taxes is that it doesn'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 more efficient."

De Mello noted that all but one OECD member country have adopted a value-added tax, describing it as "the most modern tax for consumption".

He also argued that Malaysia is better placed than before to implement such a tax because its digital tax infrastructure has improved significantly with the rollout of e-invoicing.

"Malaysia is a country that already relies heavily on e-invoice. So you already have a digitalised tax administration that makes it much easier to implement that type of taxation," he said.

"So what we are arguing in the survey is that you have what is needed by and large to have a well-functioning value-added tax. Shifting to it could help raise revenue and make the tax system more efficient."

In its latest survey, the OECD projected Malaysia's economy to expand by 4.9% in 2026 and 5.0% in 2027, supported by resilient domestic demand and continued investment, despite downside risks from trade tensions, higher commodity prices and weaker global demand.

Inflation is expected to average 2.1% in 2026 and 2.3% in 2027 while the unemployment rate is forecast to ease to 2.9% in 2026 and 2.8% in 2027. The fiscal deficit is projected to narrow to 4.0% of GDP in 2026 from an estimated 4.3% in 2025, before improving further to 3.8% in 2027, with federal government debt remaining at around 65% of GDP.

Although not an OECD member, Malaysia is an active partner of the Paris-based organisation that collaborates on policy reviews, economic surveys and comparative statistics. The OECD currently has 38 member countries, including the US, the UK, Japan, South Korea, Australia, New Zealand, Germany, France and Canada.

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