Wrong timing, weak planning: Why businesses are bracing for impact as SST expansion approaches

Borneo Post

7 hours ago

While aimed at strengthening fiscal resilience, many business associations and industry commentators argue that the move has come at the worst possible time – amid a fragile economic recovery and rising global uncertainties. – Stock photo from Pixabay
THE Malaysian government's decision to expand the Sales and Services Tax (SST), set to take effect this July 1, is stirring significant concern across industries as businesses groups sound the alarm on potential impacts on our domestic economy.
A tax in troubled times
While aimed at strengthening fiscal resilience, many business associations and industry commentators argue that the move has come at the worst possible time – amid a fragile economic recovery and rising global uncertainties.
Recent GDP figures reflected this vulnerability as Malaysia's economy grew by 4.4 per cent in the first quarter of 2025, a notable dip from the 4.9 per cent recorded in the final quarter of 2024.
The World Bank has also recently revised its 2025 GDP growth forecast for Malaysia downwards from 4.5 per cent to 3.9 per cent, further reinforcing expectations of a slowing domestic economy.
Key domestic sectors, including construction and manufacturing, have also begun to slow, while external pressures such as the escalating US-China trade war, US tariffs and escalating geopolitical tensions threaten to further dampen export performance.
Amid these headwinds, industry pundits pointed out that the SST expansion risks compounding domestic challenges rather than alleviating them.
What's different under 2025 SST expansion?
Announced under Budget 2025, the upcoming SST expansion represents a significant widening of the tax base.
This includes the expansion of the sales tax to non-essential items such as king crab, salmon, imported fruits, racing bicycles, and antique artworks, while the service tax will now cover a wider spectrum of services such as renting and leasing, construction, financial services, private healthcare, education, and beauty treatments.
Finance Minister II Datuk Seri Amir Hamzah Azizan has estimated that the expanded SST will generate RM5 billion in additional revenue in 2025, bringing total SST collection to RM51.7 billion. Of this, RM2.2 billion is expected to come from the sales tax component, while RM2.8 billion from services.
Amir Hamzah has emphasized that these changes aim to support government expenditure and social programs without overburdening the lower-income group.
Yet, business sentiment seems to paint a different picture.
Businesses sound off
In a joint statement issued on June 15 by six business associations – the SME Association of Malaysia, Malaysia Retail Chain Association (MRCA), Malaysia Retailers Association (MRA), Bumiputera Retailers Organisation (BRO), Malaysia Shopping Malls Association (PPKM), and the Federation of Malaysian Business Associations (FMBA) have expressed firm opposition to the SST rollout.
In particular, the statement criticized the eight per cent service tax on commercial property rentals and leasing services, calling its timing 'gravely misguided'.
'Implementing such a broad-based tax hike amid a fragile recovery will exacerbate inflation, cripple SMEs (small and medium enterprises), discourage investment, and erode consumer confidence,' the consortium said.
Already under pressure from cost inflation and sluggish demand, SMEs and retailers who find themselves having to grapple with tighter margins and elevating operating costs may inevitably find themselves having to pass these costs onto consumers which would further reduce household purchasing power and threaten the viability of retail operations.
The result, they say, could be widespread downsizing, closures, and job losses – all of which would further weaken the domestic economy.
That said, the associations stressed that their opposition is not to the principle of taxation, but rather to the current approach, which they describe as lacking consultation and sensitivity to the current economic realities.
Lack of engagement with industries, consumers
While the Ministry of Finance had earlier stated that the Royal Malaysian Customs Department was engaging with industry stakeholders to finalise the scope and rate of the tax back in February, the response from many associations suggests otherwise.
The Malaysian Iron and Steel Industry Federation (MISIF), for instance, issued a statement on June 20 warning that the SST and the proposed carbon tax would severely undermine the competitiveness of the steel sector especially in the current macroenvironment.
MISIF pointed out that over 240 steel-related products – including coking coal, coke, and steel scrap – would be affected.
'These are critical raw materials, and the added cost burden could encourage cheaper imports, discourage local production, and erode Malaysia's manufacturing base.'
The association also argued that taxing machinery and equipment contradicts the goals of the New Industrial Master Plan 2030, which emphasizes automation, green steel, and advanced technologies.
Moreover, a 10 per cent tax on steel mesh which is widely used in Industrialised Building System (IBS) projects could also slow construction progress, as it shifts contractors away from automation, and increase their reliance on manual labour and foreign workers.
Further discord emerged when the Minister of Plantation and Commodities, Datuk Seri Johari Abdul Ghani, announced that his ministry had called for an urgent consultation with stakeholders in the palm oil and oleochemical industries following negative feedback over the imposition of a five per cent SST on oleochemical products.
'I have instructed the ministry to engage with industry players. We want to know specifically which parts are affected. The SST is a taxation system that has already been implemented in our country.
'When receiving significant negative feedback, I said we should not just react; instead, we need to engage with the industry to understand the impact. If it affects competitiveness, only then will we review it,' he told the media after officiating at the Malaysian Palm Oil Board's Technology Transfer Programme 2025 on June 19.
While the move indicates a willingness to engage, it also raises questions about the quality and depth of earlier consultations with stakeholders if such an urgent response had to occur.
And the chorus of discontent seems to have continued to grow steadily over the last few weeks with associations like the Federation of Malaysian Manufacturers (FMM), the Malaysian Rubber Glove Manufacturers Association (Margma), the Real Estate and Housing Developers' Association (Rehda), the Association of Private Hospitals of Malaysia, and the Master Builders Association Malaysia (MBAM) all calling for the SST changes to be delayed, revised, or restructured.
Even consumers have pushed back with many questioning certain aspects of the SST expansions like the broad inclusion of imported fruits as they argue that many daily staples are imported.
To this end, Prime Minister Datuk Seri Anwar Ibrahim announced on June 26 that the government had decided to 'compromise' and exempt apples and oranges, which are consumed by the masses from the SST expansion.
'Tax reform is not the issue, a lack of strategy is'
Commenting on the issue, Hedki Heng, a corporate culture researcher and serial entrepreneur, regarded the reform of the SST as 'not an inherently wrong move, but doing so without a well-communicated strategy is just lazy policy, which may erode the people's trust'.
'We're not unwilling to contribute. We just want to know what we're contributing toward. How long must we bear it? Is it worth it? In an age of uncertainty, every government decision builds or breaks public trust,' he said.
'When we voted for a government promising reform, transparency, and hope, we weren't just asking for salary reviews or tax tweaks. We wanted long-term structural change.
'But instead we what we got was policies that change so frequently both businesses and the rakyat can't plan ahead, rising taxes and falling subsidies with no real measures to boost incomes, vulnerable communities being pushed to breaking point, and a 'tax first, aid later' model that contradicts with the intent to help and disconnects people from policy,' he lamented.
He argued that his current 'change first, explain later' attitude towards new policies gambled with the trust of citizens, and 'is the true crisis at hand'.
'There is a collapse in public trust. The more policies we have, the less trust we seem to gain. And when hope is betrayed, disappointment becomes even heavier.
'Please don't let this opportunity for reform become another chapter of national disappointment,' he warned.
'So, what can we do to fix this?'
Well, for Heng, the answer seems obvious.
'What we desperately need now is a clear medium-to-long-term fiscal roadmap that will tell us exactly how Malaysia's revenue will be sustained, how our economy will be restructured and what our tangible fiscal goals are.
'Once that's done then, and only then, can we move towards introducing new policies that have been thoroughly studied and discussed with industry stakeholders.
'Every major policy must include clear explanations of who will be affected, how the pain will be cushioned, and what support systems are in place. No more trial-and-error policies with no accountability,' he stressed.
And finally, Heng also emphasised that for the people to tighten their belts for fiscal reforms, the government must also lead by example by reforming government linked corporations (GLCs) and trim inefficiency.
'A bloated public sector and excessive spending cannot be the rakyat's burden anymore.' businesses focus lead SST tax