Amid a global trend of rising taxes to plug budget deficits, Brunei Darussalam continues to stand out as one of the few countries in the world that does not levy personal income tax.
Yet Brunei’s fiscal reality is not simply about “zero tax.” Instead, it reflects a distinct social contract, in which the state acts as the primary provider of citizens’ basic needs through a vast and comprehensive subsidy system.
Fiscal reports for the 2025/2026 budget year project government revenue at BND 3.26 billion (approximately USD 2.42 billion).
Of this total, the oil and gas sector remains the dominant pillar, contributing 75 percent, or BND 2.45 billion. This natural resource wealth enables Brunei to deliver high-quality public services without drawing directly from citizens’ personal incomes.
The “Shellfare State”: The Economic Engine Behind Zero Tax
The term “Shellfare State” is often used to describe Brunei’s economy, highlighting its heavy reliance on the partnership between the government and major oil companies.
Revenues from Brunei Shell Petroleum (BSP) and Brunei LNG (BLNG) are channeled back to the public through a highly centralized state spending mechanism. Beyond the absence of personal income tax, Bruneian citizens are also exempt from sales tax, value-added tax (VAT), and capital gains tax.
In addition to oil and gas, Brunei relies on the Brunei Investment Agency (BIA), its sovereign wealth fund, which invests surplus state revenues across a wide range of global assets.
Returns from these investments serve as a fiscal buffer during periods of volatile global oil prices, ensuring the government retains sufficient liquidity to finance public operations without introducing new tax schemes for individuals.
Massive Subsidies: From Fuel to Housing
The reality of daily life in Brunei is reflected in the very low cost of living for its citizens. The government provides heavy subsidies on basic necessities such as rice and sugar.
In the energy sector, gasoline prices (RON 97) are kept at around BND 0.53 per liter, among the lowest in the world. The same applies to electricity and water tariffs, which are heavily subsidized.
Healthcare and education services in Brunei are also free for citizens. Patients are required to pay only a minimal registration fee of BND 1 for full access to medical services.
In education, the state covers all schooling costs up to the university level, and even provides monthly allowances and scholarships for students.
Housing support is delivered through the National Housing Scheme, under which the government offers homes through highly affordable rent-to-own arrangements, often supported by state-subsidized payment schemes to ensure that every family has access to permanent housing.
Sustainability Challenges and Brunei Vision 2035
Despite the apparent stability of this fiscal model, Brunei faces growing challenges in economic diversification amid the global energy transition.
The IMF and international credit rating agencies have begun to advise Brunei to broaden its tax base in order to reduce dependence on volatile commodity energy prices.
Budget deficits recorded in recent years have accelerated the implementation of Brunei Vision 2035, a long-term national strategy aimed at building a more self-reliant private sector and developing non-oil and gas industries such as tourism, Islamic finance, and halal food manufacturing.
Even so, the Brunei government has so far remained committed to not introducing personal income tax, in order to preserve investment appeal and social stability, which have long been defining characteristics of the sultanate.
