- The targeted revision of sales tax rate and expanded service tax scope form part of broader fiscal reforms to keep the nation’s fiscal deficit on a sustainable path through increasing revenue and broadening the tax base.
- The SST reforms inevitably lead to adjustments in the economy, affecting various stakeholders, including households and businesses across different sectors. These adjustments can be higher business costs, as well as increased prices of goods and services, potentially leading to a reduction in discretionary consumer spending. When businesses face increased costs for inputs, they often pass those costs onto consumers through higher prices. This, in turn, can lead consumers to cut back on non-essential purchases, especially if their disposable income is also affected by inflation or other economic factors.
- Timing and proper sequencing of policy measures are crucial to avoid a burden on consumers and businesses. Many costs induced by policy changes have been incurred or come due, making it difficult for businesses to manage. These include an increase in the minimum wage of RM200 to RM1,700 per month, the planned implementation of a 2% employers’ contribution to the EPF for foreign workers, a multi-tiered levy, RON95 fuel subsidies rationalisation and an adjustment in electricity tariffs as well as the forthcoming port tariff adjustment of 30% at Port Klang implemented in phases over a three-year period, starting 1 July 2025.
- We are concerned that over-bunching of regulatory and policy changes can significantly increase business costs, potentially impacting their profitability and cash flow. This comes at a time when businesses’ sentiments were dampened by global economic uncertainty induced by the US’s tariffs policy and its consequential negative spillovers on the domestic economy.
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Malaysia needs a sustainable and predictable source of revenue to meet our growing development expenditure needs and strengthen fiscal resilience to build a fiscal buffer against economic shocks.
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The Government has indicated that it will prioritise improving the current tax system before assessing the need to reintroduce Goods and Services Tax (GST). Businesses and manufacturers have called for a reintroduction of GST as it is a more transparent and efficient tax system compared to SST. SST has some inherent structural limitations given its narrow base to enhance revenue growth, sustainability and also its compounding effect on businesses and consumers. Businesses do not get to claim a credit for incurring it; it creates a tax-on-tax effect along the supply chains.
Targeted Revised Sales Tax Rate and Expansion of Service Tax Scope (SST): What Does It Mean for Consumers and Businesses?
9 July 2025Additional Info
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