Supporting OECD's call for GST and fuel subsidy reform in Malaysia

Economists and fiscal experts argue that the OECD's recommendations are a necessary prescription for Malaysia's long-term fiscal health. The country's tax-to-GDP ratio has hovered around 12%, well below the ASEAN average, while fuel subsidies eat up billions that could be spent on education or healthcare. Reintroducing a broad-based consumption tax like the GST would provide a stable revenue stream less dependent on volatile oil prices. Phasing out fuel subsidies would allow the government to target aid directly to low-income households, rather than subsidizing consumption for all income groups. This approach, known as subsidy rationalization, has been successfully implemented in countries such as India and Indonesia. The OECD also notes that Malaysia's debt levels, including contingent liabilities, exceed 60% of GDP, making fiscal consolidation urgent. Supporters point out that the previous GST regime operated efficiently and had a broad exemption list for essential goods. With proper communication and a phased rollout, the government can manage public backlash. Moreover, global investors often view a value-added tax as a sign of fiscal discipline, which could improve Malaysia's credit ratings and attract foreign investment. The central bank has also signaled the need for subsidy reform to reduce leakages. For these reasons, the OECD's advice is seen as both practical and necessary.