This paper aims to analyse the inequality and poverty in Malaysia.Malaysia is considered to be a country of high inequality and high poverty according to the Asian Development Bank. To tackle the income inequality and poverty in Malaysia, especially after the incident of ethnic riot in 1969, the government pursued to implement the affirmative action for the benefit of bumiputra. Recognizing the fact that the economic factors are crucial in determining the levels of inequality and poverty, this paper analyses the historical, institutional and cultural factors and evaluates the affirmative action designed to reduce the income gap between bumiputra and non-bumiputra.