Malaysia unveils 2025 budget with expanded tax base and subsidy reforms
Malaysia plans to boost spending by 33% to 421 billion ringgit in 2025. The government aims to widen its sales and services tax scope and reform fuel subsidies to narrow the fiscal deficit to 38% of GDP
Malaysiaʼs Prime Minister Anwar Ibrahim has laid out an ambitious budget plan for 2025‚ showcasing the governments commitment to fiscal reform and economic growth. The plan‚ announced roughly a year ago includes a 33% increase in spending‚ reaching 421 billion ringgit (98 billion dollars)
The government is targeting a fiscal deficit of 38% of GDP for 2025 down from an estimated 43% in 2024. To achieve this Anwar stated‚ “Next year‚ the fiscal reforms will be more aggressive and inclusive with the progressive expansion of tax revenue and the targeting of subsidies for those most in need“
Key components of the budget include:
- Widening the scope of sales and services tax (SST)
- Reforming subsidies‚ particularly for RON95 transport fuel
- Implementing a global minimum tax
The SST expansion‚ set to begin in May 2025 will cover commercial services‚ non-essential goods‚ and premium imports. This move aims to boost government revenue which is projected to rise by 55% to 3397 billion ringgit
The fiscal reforms will be more aggressive and inclusive
Subsidy reform remains a crucial aspect of the governments strategy. The budget allocates 526 billion ringgit for subsidies and social assistance in 2025 a 144% reduction from the previous year. The government plans to extend its subsidy cuts to RON95 transport fuel in mid-2025
Despite these changes‚ the government expects steady economic growth. The forecast for 2025 stands at 45% to 55%‚ with inflation projected to remain manageable at 2% to 35%. The state energy firm Petronas will continue to contribute a dividend of 32 billion ringgit unchanged from the previous year
Malaysias monetary policy‚ guided by domestic considerations‚ is expected to remain stable. The central bank Bank Negara Malaysia has maintained its benchmark interest rate at 300% since May 2023 with no changes anticipated until at least 2026
As Malaysia moves forward with these reforms‚ the government aims to strike a balance between fiscal responsibility and sustainable economic growth
