Malaysia Urged To Raise Wages Through Productivity-Linked Tax Reform Without Hurting Fiscal Stability

KUALA LUMPUR, JULY 2026 – Malaysia has been urged to consider a new economic policy framework that could raise workers’ wages without putting additional pressure on the country’s fiscal position. Centre for Future Studies Berhad, known as THE FUTURE, proposed a Productivity-Linked Tax Rebalancing Model as a more sustainable approach to improving wages while supporting business growth.

According to THE FUTURE, the model aims to increase employee salaries, strengthen company competitiveness and preserve government revenue stability at the same time. The think tank said Malaysia needs a new approach that does not depend only on administrative wage instructions, but instead uses a restructuring of the national tax system.

The proposal includes reintroducing the Goods and Services Tax, or GST, reducing corporate tax in a targeted manner and ensuring that tax savings received by companies are channelled back to workers through productivity-based wage increases.

THE FUTURE’s early analysis found that the abolition of GST and the return to the Sales and Services Tax, or SST, after 2018 had narrowed Malaysia’s tax base. Although the country’s gross domestic product continued to grow, SST collection did not rise in line with economic expansion.

Based on THE FUTURE’s simulation, SST collection in 2025 is estimated at around RM46.7 billion, while GST revenue, if it had continued, could have reached about RM74 billion. This suggests a potential additional fiscal revenue of RM27.2 billion, which could help offset part of the revenue loss from reducing corporate tax.

The analysis also showed that a 15 per cent reduction in corporate tax collection in 2025 could result in a revenue loss of around RM21.7 billion. However, when combined with additional GST revenue and higher GST collection from increased consumption due to wage growth, the government could still record a fiscal surplus of about RM6.5 billion.

THE FUTURE said the findings show that a well-planned tax reform could create a win-win situation. Companies would receive tax relief to improve competitiveness, workers would benefit from higher wages, and the government would retain enough fiscal space to manage public finances.

For workers, the proposed model could provide a more direct benefit. Based on the 2025 simulation, a 15 per cent corporate tax reduction could generate an additional RM21.7 billion in workers’ wages, while a 20 per cent reduction could produce nearly RM29 billion in extra wages.

THE FUTURE also warned that Malaysia should not continue relying too heavily on corporate tax as a main source of national revenue. It said Singapore, by comparison, has two revenue sources that respond more effectively to economic growth, namely GST and corporate tax.

However, the think tank stressed that any reintroduction of GST must not follow the old approach or place unfair pressure on the public. It said GST should be redesigned to be fairer, more transparent and able to protect vulnerable groups, especially low-income and middle-income households.

Part of the GST revenue should also be returned to the people through targeted aid, cash transfers, more precise subsidies and support for lower-income B40 and M40 households. At the same time, corporate tax cuts should not be given without conditions. Companies must be required to link their tax savings to wage increases, worker training, productivity improvement and technology investment.

THE FUTURE proposed four main mechanisms under the Productivity-Linked Tax Rebalancing Model. These include targeted corporate tax reductions, productivity-based wage increases through wage credits and skills training, reintroducing GST with clear social protection, and using part of GST revenue to support lower-income B40 and M40 households.