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OECD urges Malaysia to reintroduce GST and phase out fuel subsidies

Published July 28, 2026 at 8:32 AM UTC

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The Organisation for Economic Co-operation and Development has called on Malaysia to bring back the Goods and Services Tax and gradually end fuel subsidies to strengthen its public finances. The OECD's latest economic survey on Malaysia points to low tax revenue and high subsidy spending as key vulnerabilities, especially as the country faces rising debt and slower global growth. Malaysia's GST was introduced in 2015 at a rate of 6%, but was scrapped in 2018 and replaced with a Sales and Services Tax that raises less revenue. Fuel subsidies, meanwhile, have cost the government billions annually, keeping pump prices low but straining the budget. The OECD warns that without these reforms, Malaysia's fiscal position could worsen, limiting its ability to invest in infrastructure, healthcare, and education. Reintroducing GST would broaden the tax base, while phasing out fuel subsidies would allow targeted aid for lower-income groups. However, both measures are politically sensitive. The government has not yet committed to either step, but the OECD's recommendations are expected to feature in upcoming budget debates. Consumers could face higher costs if subsidies are removed, though the OECD argues that well-designed cash transfers can offset the impact on the poor. The analysis comes as Malaysia's economy shows signs of recovery, but fiscal discipline remains a challenge.