Malaysia considers Consumption Tax Reform and possible reintroduction of Goods and Services Tax (GST) elements

Malaysia is considering reforming its consumption tax system to make it more progressive and efficient, including potentially reintroducing elements of the Goods and Services Tax (GST). The government says the current SST has weaknesses, while Budget 2027 will be tabled on 9 October 2026.

Malaysia previously applied a 6% GST, but abolished it in 2018 following concerns over rising living costs. It was replaced by the narrower Sales and Service Tax (SST) system.

Anwar described GST as a transparent and efficient method of tax collection but acknowledged concerns about its impact on lower-income households. He also stated that the government cannot maintain the current SST system indefinitely because of weaknesses in its structure.

The government is therefore considering how elements of the existing SST and a broader GST-type system could potentially be combined to create a more progressive and efficient consumption tax framework. However, no final model, tax rate or implementation date has been announced.

The potential reform comes as Malaysia continues broader fiscal consolidation measures. According to the Ministry of Finance, targeted reforms to electricity, diesel, petrol and other subsidies are generating around RM15.5 billion in annual savings.

The government is currently preparing Budget 2027, which will focus on ten key areas, including managing cost-of-living pressures, improving fiscal efficiency, narrowing regional development gaps and supporting investment and economic growth.

Budget 2027 is scheduled to be presented to Parliament on 9 October 2026. The government is currently consulting businesses, the public and other stakeholders before finalising its measures.

Implementation impact and what businesses should do:

The proposed consumption tax reform is still under consideration, and businesses do not currently need to make changes to their tax, POS, ERP or invoicing systems based on this announcement alone.

However, companies operating in Malaysia should monitor the development of Budget 2027 and any subsequent tax legislation, particularly for confirmation of whether GST will return, how it would interact with SST, applicable tax rates, scope and implementation dates.

Retailers and software providers should also assess whether their POS, ERP, accounting and e-invoicing systems could support future changes in tax calculation, tax rates and reporting requirements. For now, existing SST obligations continue to apply until the government formally adopts and implements a new consumption tax framework.

This article is based on reporting initially published by VATupdate. Source

Nikolina Basić, Senior Legal Consultant at Fiscal Solutions

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