Warning against hasty GST return and fuel subsidy removal in Malaysia

Critics caution that the OECD's recommendations overlook the social and political realities in Malaysia. Reintroducing the GST would hit low- and middle-income households hardest, especially if implemented without a robust cash-transfer system. The previous GST was deeply unpopular and contributed to the 2018 electoral defeat of the government that introduced it. Many Malaysians still associate the tax with rising living costs. Phasing out fuel subsidies would similarly raise transport and food prices, fueling inflation and public discontent. Malaysia's social safety net is not yet strong enough to offset these shocks for the most vulnerable. The government's existing aid programs, such as Bantuan Sara Hidup, have been criticized for poor targeting and coverage gaps. Moreover, the economy is still recovering from the pandemic, and many small businesses cannot absorb additional tax burdens. Opponents argue that instead of reimposing a broad regressive tax, Malaysia should focus on improving compliance with existing taxes, curbing corruption, and expanding the corporate tax base. The OECD's model may work for developed economies, but Malaysia's informal sector and lower administrative capacity pose challenges. Gradual reform with more robust welfare systems is preferable to swift policy reversals. Critics also note that the government has already undertaken some subsidy rationalization without causing major unrest, but a full removal of fuel subsidies could be destabilizing.