Former Klang MP Charles Santiago has proposed a 2% wealth tax on the 50 richest Malaysians, which he says could help plug the fiscal gap due to subsidy rationalisation and help prevent the need for recently announced government spending cuts.
Santiago argues that Malaysia’s richest individuals have seen significant wealth growth while the government is now tightening spending in areas such as healthcare and higher education at the expense of lower income groups.
According to the Forbes Top 50 list the total wealth of this group is US$116 billion or approximately RM460 billion. A 2% tax on this would be RM9.2 billion which is close to what Santiago estimates.
However, it is a tax on total wealth which includes property and businesses not just financial or cash assets. It is not so easy to tax those assets quickly, especially since many may be overseas or jointly owned. They may also be protected by current tax arrangements or by forensic tax accountants who help the rich avoid such taxes.
There are alternatives. For example, as of December 2025, Malaysia’s capital market reached a record high of RM4.3 trillion. A tiny tax of 0.25% on these capital assets would raise RM10 billion.
A capital gains tax on share sales or dividends in private companies or family businesses could also be effective in taxing wealth and profits that are often hidden in private transactions and would place these on the same footing as capital gains on publicly traded shares.
A wealth tax would not meaningfully address inequality and fiscal pressure because it is essentially a one-off tax, not unlike the windfall taxes imposed in 2022 by then finance minister Tengku Zafrul Aziz on companies with profits above RM100 million. Or his earlier windfall taxes on glove makers and palm oil. It is more symbolic than impactful in practice.
If the government repeatedly taxed wealth, rich people would simply put their wealth overseas or stop accumulating wealth. This has a very harmful effect on capital investment and savings.
Subsidy rationalisation was on course to save more than RM20 billion but unfortunately this has stalled. This could have been used to cut taxes for middle-income groups or even to give more STR-Sara support which could have been effective in tackling income inequality.
Unfortunately, there is no grown-up discussion of tax reform in Malaysia because of the Groundhog Day debate on SST vs GST. It is now time to consider new proposals such as a wealth tax proposed by Santiago as part of the wider debate.
Given Malaysia’s reliance on indirect taxes and subsidies, tax reform should be prioritised. Not by focusing on GST vs SST, wealth taxes or restructuring income taxes but by looking at what areas of economic activity can be most effectively and efficiently taxed.
As other forms of tax reach the end of their fit-for-purpose life span, tax reform should focus on electronic payments because these now represent more than 80% of transactions. An electronic payments tax (EPT) of just 1% would raise RM28 billion.
Together, tiny taxes on the capital market and e-payments can raise RM38 billion. Added to subsidy savings, RM58 billion can be made available. With a small capital gains tax on private share transactions and the continuing push on collection efficiency and e-invoicing the tax system could be transformed.
Nonetheless, even if any new taxes make economic sense in principle, the biggest question is: Does Malaysia have the political will and institutional capacity to implement them?
With an election on the horizon this could be an exciting discussion to have or one that politicians would rather avoid.
The views expressed are those of the writer and do not necessarily reflect those of FMT.