Malaysia Eyes More Subsidy Cuts, New Taxes in 2025 Budget to Boost Finances

KUALA LUMPUR – Malaysia is expected to introduce further subsidy cuts and new taxes as part of its 2025 budget, aimed at strengthening its fiscal position amid falling government revenues. Analysts and economists anticipate Prime Minister Anwar Ibrahim will announce these measures on Friday when he presents the government’s spending plan in parliament.

Key initiatives likely to be introduced include a tax on high-value goods and a levy on sugar-sweetened beverages, both of which were initially proposed in the previous budget. However, the government is not expected to reintroduce a broad-based goods and services tax (GST), despite calls to bolster revenue in the face of decreasing contributions from national energy firm Petroliam Nasional Berhad (Petronas).

Petronas, a key source of government revenue, is forecast to contribute RM32 billion ($7.45 billion) in dividends to the federal government this year, down from RM40 billion in 2023. Lower crude oil prices are expected to affect Petronas’ income, posing a challenge to maintaining significant dividend payouts.

“Given that crude oil prices are likely to stay lethargic, it could be quite challenging for Petronas to maintain a sizeable dividend payout to the government,” said Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia.

The government is also expected to revise its economic growth projection for 2024 to between 4.5% and 5.1%, up from the previous range of 4% to 5%. The economy is forecast to grow by 5% in 2025.

In response to rising living costs, subsidy adjustments for RON95 petrol, sugar, and domestically produced white rice may also be part of the budget, according to CIMB Research. This follows the removal of blanket subsidies for diesel fuel, electricity, and other essentials, as the government shifts to a targeted subsidy approach to benefit low-income households.

Additionally, a broad restructuring of civil servant wages, effective Dec. 1, aims to align salaries with the rising cost of living. Analysts predict that Malaysia’s fiscal deficit will narrow to between 3.5% and 3.9% of gross domestic product (GDP) in 2025, down from an estimated 4.3% this year, largely due to subsidy cuts.