KUCHING: Malaysia’s tax review should address cascading taxes without adding costs that could further disadvantage businesses operating in Sarawak.
Sarawak Business Federation (SBF) president Datuk Jonathan Chai Voon Tok (pic) said one of the biggest concerns under the current Sales and Service Tax (SST) system was the cascading ‘tax-on-tax’ effect, where taxes paid on business inputs become embedded in production costs because they are generally not recoverable.
He said this ultimately raises costs throughout the supply chain and can reduce the competitiveness of Malaysian businesses.
“The current review presents a good opportunity to address some long-standing structural issues within the SST system rather than simply introducing new tax measures,” he told Sarawak Tribune.
He said the review should also improve consistency, reduce ambiguities in tax treatment across industries, simplify compliance requirements and make the tax system more transparent and predictable.
“Businesses value certainty as much as lower costs and a simpler and more coherent tax framework could encourage investment and reduce unnecessary administrative burdens.”
On the possibility of incorporating selected Goods and Services Tax (GST) features into the SST framework, he said the success of any reform would depend on whether it genuinely resolves existing problems rather than creating additional layers of compliance.
He added that any GST features adopted should be selected because they improve the efficiency of the tax system, rather than simply because they resemble mechanisms used under the previous GST system.
“Mechanisms that minimise cascading taxes, improve refund processes, strengthen digital tax administration and enhance transparency could benefit businesses if they can be implemented without significantly increasing compliance costs,” he said.
He added that industry groups had similarly highlighted input tax credits, efficient refunds and digital verification as among the most valuable GST features.
“Any additional requirements, however, should remain proportionate, particularly for small and medium enterprises.”
“Businesses should not face another major compliance exercise involving costly software upgrades, extensive reporting obligations or additional manpower. Digitalisation should reduce paperwork, not increase it,” he said.
Sarawak cost considerations
Chai said Sarawak’s geographical and business conditions should also be taken into account when the Finance Ministry assesses any changes to the tax framework.
“Many businesses in the state operate across vast geographical areas and face higher logistics, transportation and distribution costs compared with Peninsular Malaysia.
“Businesses in construction, manufacturing, agriculture, timber, oil and gas support services, tourism and wholesale distribution can incur significant operating costs before their products even reach consumers,” he said.
He cautioned that if a revised tax framework causes more taxes to become embedded in business inputs, companies in Sarawak could be disproportionately affected as those costs are compounded by distance and transportation expenses.
“The government should therefore assess the regional impact carefully and ensure the revised framework does not unintentionally widen the cost disadvantage faced by businesses operating in East Malaysia.
“Tax reforms should support national competitiveness while recognising Malaysia’s regional diversity,” he said.
Avoid another costly transition
Beyond the design of the tax system itself, Chai said businesses would need certainty, adequate preparation time and extensive consultation before any changes are implemented.
He said consultations should involve industry players, professional bodies, SMEs and regional representatives, with the objective of developing a practical and sustainable tax system that can remain in place over a longer period.
“In business, certainty and consistency are key to survival, rather than frequent amendments or abolition driven by political considerations,” he said.
He noted that businesses had gone through numerous tax-related changes over the past decade, from GST to SST, the subsequent expansion of the SST scope and, more recently, e-invoicing.
“Each transition requires significant administrative adjustments involving system upgrades, training costs, software purchases and additional manpower to meet statutory requirements.
“These cumulative costs add to the overall cost of doing business, particularly when the economic environment remains challenging,” he said.
Before implementation, he said businesses would need a clear roadmap and sufficient transition period, early publication of detailed guidelines and technical specifications, and adequate lead time to upgrade accounting systems and train staff.
He also called for continuous engagement with industry to address operational issues during implementation and a firm commitment that the objective of reform is to improve efficiency and competitiveness rather than increase the tax burden.
Broaden compliance, not the burden
Chai said any amendment to Malaysia’s tax system should not result in an additional tax burden on the business community or further increase the cost of doing business.
The primary objective, he said, should be to improve the efficiency, fairness and integrity of the tax system rather than simply raise more revenue.
“Any new framework should also support wider national policy objectives, including reducing social inequality and strengthening enforcement against the shadow economy, tax evasion and illicit trade.”
He said greater transparency and better traceability of commercial transactions could help curb leakages from the black market and ensure businesses compete on a level playing field.
He added that the eventual success of tax reform would depend not only on its design, but also on the confidence it gives businesses.
“If the reforms reduce distortions, simplify compliance and improve competitiveness without imposing excessive administrative costs, they are likely to receive much broader support from the business community.
“Ultimately, tax reform should broaden compliance, not increase the burden on those businesses that are already complying with the law,” he said.
