In its 'Credit Analysis: The Government of Malaysia' report, the rating agency said the introduction of GST in April next year would aid revenue diversification.
It said at six per cent, which is still be below rates in neighboring countries, it would be positive for revenue and leave space for future increases without undermining tax competitiveness.
"Nevertheless, increased revenue from GST is offset somewhat by cuts to corporate and personal income taxes, as well as one-off transfers related to 'tax relief'.
In addition, Moody's said, plans to broaden the tax base would further enhance the revenue, given that only 1.8 million individuals out of a population of around 29 million pay income tax.
Coupled with continued spending restraint, including further subsidy reductions, the rating agency expects a lower deficit in 2014, in line with the goals of the government's fiscal reform programme.
Moody's said along with stronger economic growth this year, smaller fiscal shortfalls will lead to a downturn in the debt stock as a share of gross domestic product.
"This will give the government greater fiscal room for manoeuvre," it said.
Moody's assessment of Malaysia's fiscal strength as 'High(-)' balances the government's wide deficits and large debt stock relative to A-rated peers against the high proportion of local currency-dominated debt, and the presence of a relatively large sovereign wealth fund.
Moody's revised its rating outlook on Malaysia to positive in November 2013, driven by enhanced prospects for fiscal consolidation.