Malaysia to adopt net disposable income framework in classification overhaul

KUALA LUMPUR: Malaysia is set to overhaul its decades-old income classification system, replacing the B40, M40, and T20 framework with a more granular and equitable approach based on net disposable income.

Economy Minister Rafizi Ramli said this change aims to better reflect the realities of household income disparities and improve subsidy targeting.

“The legacy classification system, introduced in the 10th Malaysia Plan, has been criticised for its simplistic statistical lines, which risk excluding or misclassifying households,” he said during a fireside chat at Malaysia Economic Forum 2025 today.

Rafizi said this policy shift is critical as Malaysia prepares for the rationalisation of RON95 fuel subsidies, a major government initiative scheduled for implementation in the coming months.

“The Economy Ministry has confirmed that the necessary data infrastructure is ready, with the final decision on subsidy targeting expected from the Cabinet.

“Two key announcements regarding subsidy eligibility and implementation mechanisms would be made soon after Cabinet approval.

“The government plans to retarget the RON95 subsidy towards eligible recipients, ensuring equitable access for about 85% of the population,” he said.

Rafizi highlighted that the RON95 rationalisation aligns with the government’s broader effort to transition from outdated income classifications to a net disposable income approach.

“By leveraging digital records and advanced data systems, the government seeks to address the limitations of the B40, M40, and T20 framework, creating a fairer system that reflects the actual needs of households,” he said.

He noted that the announcement aligns with broader goals under the 13th Malaysia Plan (13MP or RMK13), which is being positioned as a dramatic and radical departure from traditional five-year economic plans.

Unlike previous plans that focused heavily on economic development and infrastructure projects, 13MP will prioritise education, upskilling, and workforce transformation, he said.

Rafizi emphasised that this shift is essential to prepare Malaysia’s human capital for the demands of a developed nation.

Education will be central to ensuring the country’s workforce can leapfrog into higher-skill industries.

Furthermore, Rafizi said a significant highlight of 13MP is its focus on inclusivity.

“While past five-year plans were often viewed as relevant only to specific economic sectors, the new emphasis on education and skills development is expected to resonate with every Malaysian. The government believes this focus will make RMK13 more impactful, touching on areas that directly influence the lives of citizens and enhancing the nation’s overall competitiveness,” he added.

Rafizi also addressed concerns over stagnant wages, emphasising that laboir market reforms and wage growth will underpin Malaysia’s economic transformation.

He pointed out that median wages remain low, with civil servants earning just above the poverty line.

“The government is pushing for a progressive wage system tied to productivity, alongside creating higher-skill job opportunities through new industries and technology-driven sectors,” he said.

Despite acknowledging that Malaysia will likely miss its RMK12 target of achieving a 40% labor compensation-to-GDP ratio, Rafizi remained optimistic about the longer-term goal of reaching 45% by 2030.

Additionally, Rafizi said the Johor-Singapore Special Economic Zone is expected to position Johor as a serious competitor to the Klang Valley within the next five to 10 years.

He stated that initial estimates suggest the newly established special economic zone, formalised recently, will contribute an additional US$28 billion (RM125.9 billion) annually to the country’s gross domestic product.

Commenting on data centres, Rafizi noted that Malaysia is poised to become a hub in the region, with Johor playing a key role in this emerging growth sector.

“If you imagine the next 10 to 15 years, there will be numerous data centres, and this trend is irreversible. Therefore, Malaysia needs to strengthen its energy sector to support this growth.”

Rafizi also said Malaysia plans to locally manufacture graphics processing unit (GPU) chips within the next five to 10 years. “If we can realise the potential of moving up the semiconductor value chain, rather than just focusing on backend processing, we can start producing Malaysian-made GPUs and chips within the next five to 10 years.”