A Reflection on IDEAS and the Politics of Revenue

The recent IDEAS paper confronts a truth Malaysia has postponed for too long.

Our fiscal system is too shallow for our ambitions.

Our redistribution is too weak for our inequality.

Our federation is too centralised for its constitutional design.

Federal government revenue remains below 17 percent of GDP. Putrajaya controls over 90 percent of overall revenue and expenditure, an unusually high degree of fiscal centralisation for a federation. Pre- and post-tax income inequality barely shifts. Development expenditure tightens as operating obligations expand. We compensate with Petronas dividends and episodic adjustments, then call it reform.

It is not structural reform. It is managerial adjustment.

The more interesting question is political.

Why has Malaysia struggled to undertake serious tax redesign?

Because taxation is never merely economic. It is political. 

DAP draws heavily from urban constituencies where capital accumulation and asset appreciation are concentrated. UMNO’s political architecture was forged around central authority and developmental discretion. PKR, governing from Putrajaya, inherits both the gravitational pull of executive authority and the quiet temptations that accompany control, alongside the caution of incumbency.

None of these incentives naturally favour a deeper, broader and more progressive tax architecture that simultaneously narrows the centre’s discretion.

That is political economy.

Much of the current reform narrative is framed around lifting the ceiling — attracting capital, activating GLICs and re-engineering higher-value sectors. These are necessary components of modern growth. But sustainable expansion cannot rely solely on capital formation, with improved livelihoods treated as downstream effects. A more durable synthesis recognises that widening purchasing power, strengthening rural infrastructure and recalibrating fiscal federalism are not merely redistributive acts. They are growth multipliers in their own right. Fiscal federalism, once seen as premature or politically sensitive, is increasingly an idea whose time has come.

In that rebalanced understanding of growth, PAS stands on different terrain.

A party rooted in rural and semi-urban Malaysia, governing states that experience fiscal centralisation as constraint rather than advantage, and not structurally dependent on urban asset concentration, has room to speak about taxation differently.

PAS has not historically sat at the core of Malaysia’s fiscal settlement. Consequently, it has not had to internalise the calculated instincts that accompany control of the revenue levers. Its electorate, long positioned at the periphery of federal allocation, has participated in the national tax bargain largely as recipient rather than architect. That equilibrium would necessarily shift if ever PAS were to command Putrajaya.

Revenue sharing is not fragmentation. It is federal correction.

Rural infrastructure is not subsidy. It is equalisation.

A broad-based consumption tax is not regressive if paired with automatic income support.

Capital gains and inheritance taxation are not punitive if calibrated and transparently reinvested in productivity and equalisation.

The current system taxes labour more consistently than it taxes accumulated capital. It centralises revenue while local needs compound. Petronas absorbs the shock, but it cannot substitute indefinitely for a broader base.

This is not sustainable.

If GST returns, it must return contractually, with rules-based compensation and visible enforcement.

If capital gains are aligned more closely with income tax treatment, it must be done predictably, protecting small investors while addressing structural bias.

If inheritance taxation is considered, it must focus on significant estates, not modest family assets.

And if revenue rises, statutory formula-based transfers to states must follow. Otherwise reform will merely strengthen the centre.

Tax is not the enemy of growth.

It is one of its instruments.

Poorly designed tax distorts incentives.

Chronic under-taxation constrains possibility.

If widening purchasing power, rural infrastructure and fiscal federalism are indeed growth multipliers, then revenue architecture cannot remain an afterthought. It must sit at the centre of the model itself.

Malaysia’s challenge is not whether it can design a fairer and more growth-consistent system. It can.

The question is whether any political formation is prepared to align tax design, federal balance and growth strategy within a single governing framework.

The space for such reform exists.

Whether it is pursued will determine how the gains of growth are distributed across the federation.

*This reflection responds to the IDEAS article published in The Edge Malaysia Weekly (February 16–22, 2026), available here: https://theedgemalaysia.com/node/793111