THE government’s willingness to study whether certain features of the Goods and Services Tax (GST) can be incorporated into the existing Sales and Service Tax (SST) is a useful starting point.
But the bigger question is not whether Malaysia should combine two tax systems. It is whether the country’s tax framework is equipped for a fast-changing digital economy.
The debate has become trapped in a false choice between GST and SST. Tax reform should instead begin with evidence.
Before introducing new mechanisms, the government should assess how the expanded SST, implemented in July 2025, has performed in practice.
That review should examine revenue collection, business compliance costs, consumer prices, tax cascading and how effectively SST captures digital transactions.
It should also identify where evidence remains incomplete and whether any GST features would actually solve those problems.
Modernising the tax system does not automatically require creating a hybrid model.
If the government eventually considers adopting specific GST mechanisms, it must first define exactly what those features are intended to achieve.
For example, input tax credits and refund mechanisms would fundamentally change how SST operates and require an entirely different administrative framework.
Digital reporting tools such as e-invoicing, meanwhile, improve tax administration rather than changing the tax’s underlying structure.
These measures serve different purposes and should not be treated as interchangeable reforms.
Malaysia’s tax system also needs to keep pace with new forms of economic activity. Digital platforms, gig work, crypto-asset transactions and emerging business models present challenges that existing tax rules were not originally designed to address.
The law must clearly specify what is taxable, who is responsible for collecting tax and how payments should be administered. Effective reform also requires capable institutions.
If more complex mechanisms such as input tax credits or refunds are introduced, the Royal Malaysian Customs Department will need trained personnel, reliable digital systems, clear procedures and sufficient auditing capacity to administer them effectively.
Making the tax system more progressive requires a separate conversation.
Consumption taxes and household support serve different purposes. Personal income tax relief may offer little benefit to lower-income households that pay minimal income tax, making targeted financial assistance a more effective policy tool.
Where multiple agencies are involved, their responsibilities and authority to share information should also be clearly established.
Malaysia’s own experience with GST between 2015 and 2018 offers valuable lessons. Rather than assuming GST either succeeded or failed outright, policymakers should distinguish between problems arising from the tax’s design and those resulting from its implementation.
That distinction matters if future reforms are to avoid repeating past mistakes.
Public consultation should also become a central part of the process. The government should publish the problems it has identified, explain the options under consideration and outline their likely impact on revenue, businesses and households.
Consumer groups, small businesses, digital platforms, tax professionals and enforcement agencies all have practical insights that could improve the final outcome.
Any eventual reforms should also reflect internationally recognised tax principles, including those promoted by the Organisation for Economic Co-operation and Development (OECD).
A well-designed tax system should treat comparable businesses fairly, remain straightforward to administer, collect revenue efficiently and adapt to technological change.
Ultimately, the question is not whether Malaysia chooses GST or SST. The real test is whether it builds a tax system that is evidence-based, administratively workable and capable of supporting both economic growth and household welfare in a rapidly evolving economy. ‒ Aug 26, 2026
Hal Lai Keong is a PhD candidate and Dr. Ong Tze Chin is a Senior Lecturer, at the Faculty of Law, Universiti Malaya.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main image: Pexels/Towfiqu Barbhuiya
