KUCHING: The government’s intention to expand the Sales and Service Tax (SST) is expected to improve Malaysia’s fiscal position through a more targeted tax approach on non-essential goods and services, said economist Datuk Dr Madeline Berma.
Madeline, a Fellow of the Malaysian Future Institute, said the SST is presented as a manageable tax structure compared to the Goods and Services Tax (GST), which it replaced in 2018.
“SST is a simpler tax system, applied either on goods (Sales Tax) or services (Service Tax), and was reintroduced to reduce compliance complexity and address public concerns over GST.
“It’s less revenue-generating but more manageable for businesses and consumers,” she told Sarawak Tribune during an interview.
“The system is more targeted and fair, as it mainly affects those who spend more on luxury and non-essential goods and services.
“The government’s decision to focus on imposing taxes on luxury goods and non-essential items meant that only the high-income earners would be directly affected.
“The low and middle-income will be affected indirectly, with the implementation of SST on six new categories of services,” she said.
The expanded SST now covers leasing and rental, construction, finance, private healthcare, education, and beauty services.
Madeline said that the broader scope of taxation would likely affect nearly all manufactured goods and services.
She also noted concerns from industry players, including the Federation of Malaysian Manufacturers (FMM), which has estimated a cost increase of RM24,000 to RM60,000 per year for businesses relying on rented premises.
“The imposition of sales tax on capital goods is expected to raise investment costs, which could delay business expansion and dampen investments across key sectors,” she said.
Despite these concerns, the government anticipates increased tax revenue – from RM46.7 billion in 2024 to RM51.7 billion in 2025.
“This will create fiscal space for targeted subsidies, improve infrastructure, and enhance service delivery.
“It aligns with the broader MADANI economic framework that aims to strengthen the social safety net without increasing the cost of living for the general public,” Madeline explained.
She also warned that the introduction of SST has disrupted pricing strategies across sectors, as businesses must now adjust their pricing structures to reflect the tax.
“This involves complex calculations and could lead to higher costs for consumers, especially as businesses already face rising expenses,” she said.
She stressed that the added burden may fuel inflation, with many companies likely to pass on the costs to consumers.
In addition, businesses face compliance costs such as upgrading systems, training staff, and overhauling internal processes.
“SST compliance requires more than pricing changes; it involves significant investment, which can strain profit margins and cash flow,” Madeline added.
She also urged a long-term review of the GST, suggesting it be implemented at a rate that would not burden the public.
“It’s a transparent, efficient tax that offers a stable and sustainable revenue stream,” she said.
