BUDGET 2027 must focus on boosting national tax revenue without raising tax rates, including reviewing the income threshold for higher marginal individual income tax rates, the World Bank has advised.
World Bank Lead Economist for Malaysia Dr Apurva Sanghi highlighted that one of Malaysia's largest structural challenges is the decline in tax revenue relative to Gross Domestic Product (GDP).
Speaking at a media briefing on the World Bank’s East Asia and Pacific Economic Update and the Malaysia Economic Monitor Report, Sanghi noted that the government could enhance revenue mobilization through several methods without raising tax rates, including lowering the income threshold for higher individual marginal tax rates.
"Currently, Malaysia's individual income tax threshold is relatively high compared to many other countries. So, lowering the threshold without raising the tax rate is one way to increase revenue," Sanghi said.
He added that the government could also consider clearer limits on tax reliefs and deductions, particularly for high-income groups.
Furthermore, Sanghi suggested that Budget 2027 should address simplifying the corporate income tax structure for small and medium enterprises (SMEs).
"Currently, there is a multi-rate structure, but it could be consolidated into a single preferential corporate tax rate. In addition, the government could consider phasing out special tax treatment as firms grow beyond the SME threshold," Sanghi explained.
He noted that the abrupt withdrawal of tax privileges when an SME grows into a non-SME firm creates a "tax cliff," which disincentivises SMEs from formally expanding into larger enterprises.
Creating incentive structures that encourage firms to grow beyond SME status is critical, given that approximately 97 to 98 per cent of businesses in Malaysia consist of SMEs and micro, small, and medium enterprises (MSMEs).
Regarding social protection, Sanghi urged the government to consider increasing the assistance amount per recipient through existing schemes such as Sumbangan Asas Rahmah (SARA) and Sumbangan Tunai Rahmah (STR).
He noted that while coverage of these assistance programmes has expanded, adequacy remains an issue as available benefits are spread thin across many recipients.
"So, increasing the benefit per recipient is something that could perhaps be considered in the budget," Sanghi said.
He also proposed extending coverage under the Employment Insurance System (EIS) to gig workers, possibly through government-matching grants to encourage participation, alongside strengthening social protection for senior citizens as Malaysia approaches aging nation status. - October 6, 2026
