The Limits of Malaysia’s Anti-Corruption Efforts

Malaysia is cranking up its anti-corruption machinery. Prime Minister Anwar Ibrahim’s 2026 New Year address reaffirmed the government’s tough anti-corruption stance. Malaysia then announced plans to fast-track the recovery of USD7 billion in assets from 1Malaysia Development Berhad (1MDB). The Malaysian Anti-Corruption Commission (MACC) set a MYR10 billion (USD2.6 billion) recovery target for the year.

The question here is not whether such efforts should continue; they should and must. But the more pertinent question is whether the authorities can meaningfully delay a broader reckoning: the need to reform how Malaysia raises revenues. Rising political pressures carry fiscal costs; in addition, structurally constrained finances behooves Malaysia to grow more immediate and stable revenue fixes. It cannot rely on monies gained from anti-corruption wins to reliably plug those fiscal gaps.

Ongoing anti-corruption efforts do double duty in PM Anwar’s Madani government. It signals a break from previous administrations tainted by graft. Morever, the spoils of anti-corruption crackdowns and asset recoveries are often framed — implicitly or otherwise — as evidence that Malaysia can strengthen its finances by getting its house in order rather than conventional revenue-enhancing measures such as taxes.

The MACC estimates that Malaysia lost MYR277 billion (USD71 billion; MYR55 billion/USD14.1 billion annually) to leakages from 2018 to 2023. By comparison, the figure is 66 per cent of Malaysia’s record MYR421 billion (USD108 billion) national budget for 2026. In the long term, eradicating graft improves tax compliance (where revenues are lost to bribery and unpaid taxes) and ensures that public funds reach their intended destination. 

But the anti-graft drive is neither stable nor sufficient as a substitute for regular revenue. As  fiscal tools, asset recovery and corruption seizures, however successful, behave like windfalls: irregular and difficult to budget around.

When cross-border transfers are involved, the challenge becomes Herculean — dependent on foreign cooperation and litigation timelines. They can take years to unravel and can yield little in the interim. It took six years from December 2018, for instance, to repatriate almost MYR30 billion (USD7.7 billion) in 1MDB assets.

In theory, recoverable sums run into the hundreds of billions. In practice, clawbacks are far smaller, even in advanced economies with stronger enforcement. The UK Criminal Finance Act 2017 tightened laws against financial crime including money laundering, corruption and tax evasion. But less than GBP7 billion (USD9.5 billion) of an estimated GBP700 billion (USD952.7 billion) in dirty money has been frozen, and under GBP2 billion (USD2.7 billion) was permanently recovered. In Malaysia, authorities recovered MYR15.5 billion (USD4 billion) from corruption, smuggling, and cartel activities between 2023 and 2025, against the estimated leakages of MYR277 billion.

The need to defer taxes in the wake of anti-graft gains is understandable. Taxes are unpopular, and the Goods and Services Tax (GST) contributed to the Barisan Nasional government’s fall in 2018. The Madani government has instead pursued incremental measures, including the 2025 Sales and Services Tax expansion. This is expected to add another MYR10 billion to national coffers.

But time is not on the side of this or subsequent federal governments. Malaysia’s fiscal pressures are mounting. Debt service now absorbs 17 per cent of revenue: MYR17 of every MYR100 collected goes to servicing debt before other spending, and the country has MYR24 billion (USD6.16 billion) of remaining 1MDB debt to pay off.

Long-standing reliance on Petronas dividends to patch fiscal gaps is also becoming less tenable. Due to global oversupply, oil prices are expected to soften in the next few years. As a result, Petronas dividend flows should moderate. Petronas will pay MYR20 billion (USD5.1 billion) in 2026, down from MYR32 billion (USD8.2 billion) in 2025 and MYR40 billion (USD10.3 billion) in 2023.

Against this backdrop, the idea that Malaysia can navigate rising political pressures — which carry fiscal costs — and structurally constrained finances  while delaying more regular, stable revenue seems increasingly inadequate.

Increasingly complex federal–state fiscal relations likewise add budgetary pressure. Resource-producing states such as Sabah and Sarawak are pressing for greater revenue autonomy, including in oil and gas. Meanwhile, non-oil states such as Johor are calling for larger shares of state-derived tax revenue from Putrajaya.

In October 2025, the federal government’s non-compliance with Sabah’s constitutional entitlement to 40 per cent state-derived revenue was ruled unlawful. Anwar chose not to appeal the court’s ruling, particularly after the thrashing that Pakatan Harapan received in the 2025 Sabah elections. Compliance may cost the federal government MYR20 billion annually, depending on how the entitlements are calculated. This would likely be on top of some existing development spending, given Sabah’s numerical weight in Anwar’s government and sensitivities related to honouring the 1963 Malaysia Agreement.

Against this backdrop, the idea that Malaysia can skirt round the problems of rising political pressures — which carry fiscal costs — and structurally constrained finances while delaying more regular, stable revenue is increasingly inadequate.

More immediate fixes should be reconsidered, with the GST being one of the most effective. This is not because it raises more than the Sales and Services Tax (SST) — GST collections peaked at MYR44 billion (USD11.3 billion) in 2017, versus SST’s projected MYR51 billion (USD13.08 billion) in 2025; rather, GST better tackles the estimated RM300 billion (USD76.9 billion) shadow economy compared to the SST. GST is complemented by digital invoicing and the enforcement of greater end-to-end supply chain audit trails. The Ministry of Finance has acknowledged that the shadow economy shrank from 30 per cent to 20 per cent during GST enforcement. Inflation concerns can be mitigated through exemptions for essentials and cash aid. A broader GST base also allows for lower tax rates, which would be more politically appealing.

Other options include raising the top income tax rate above 30 per cent for those earning more than MYR2 million — still low by regional standards — and expanding the capital gains tax. These measures can support revenue growth, which has been lagging. To illustrate, public revenue-to-GDP has fallen to around 16 per cent — almost half of the share earned in 1990.

Governance reforms and cleaning house are necessary conditions for fiscal sustainability. However, if Malaysia hopes to invest in its future, particularly in a less forgiving global environment and more complex domestic polity, it must do so with predictable and stable tools it can control.

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