Malaysia is seen to face challenges in meeting its government's revenue targets this year following a decline in non-tax revenue, particularly from petroleum-related revenue, as oil prices are projected to be lower on average.
Despite efforts to raise revenue through higher taxes, such as raising the sales and services tax and introducing a capital gains tax, the country's revenue collection remains at 54.5% of the 2024 goal, marking the lowest in five years.
The government has been working to reduce its fiscal deficit, which has persisted since the 1998 Asian Financial Crisis.
This year, the government's goal is to narrow the budget gap to 4.3% of GDP, down from 5% the previous year.
Most efforts are focused on reducing spending without restricting economic growth.
Spending is expected to decline from 20.3% of GDP in 2023 to 19.4% this year, partly due to the abolition of comprehensive diesel subsidies.
The government remains cautious in implementing new taxes, such as reintroducing the goods and services tax (GST), which was previously discontinued.
With planned subsidy cuts and targeted spending measures, Malaysia may be on track to meet its budget deficit target while managing its revenue shortfall.
