MOF rolls out progressive SST framework, aiming to raise RM10 bil annually

Focus Malaysia

19 hours ago

THE Ministry of Finance (MOF) has announced that the implementation of the expanded Sales and Service Tax (SST) will take effect on 1 July 2025.
Under the revised framework, a sales tax of 5% to 10% will be applied to selected non-essential items.
Concurrently, the service tax (6% or 8%) will be broadened to cover additional service categories, including rental or leasing, construction, financial services, private healthcare, private education and beauty services.
The government has expanded the scope of SST to strengthen the fiscal position by increasing and broadening the revenue base.
A portion of the additional revenue will be redirected towards enhancing public services, while also creating fiscal space.
This effort is aligned with the government's commitment to implementing a more targeted and progressive SST framework that minimises the burden on general public.
To support a progressive and targeted approach, the government has structured the SST into two tiers (5%, 10%) based on the nature of necessity.
Essential goods such as bread, cooking oil, milk, and medicine will remain exempted from tax.
Instead, high value or premium products such as imported seafood (salmon, cod fish) and industrial machinery will be subject to SST.
The expansion also targets specific services predominantly consumed by higher-income groups or non-residents.
These include selected banking services, private healthcare for foreigners and private education where annual fees exceed RM60k.
To minimise the impact, the government has introduced several reliefs and facilitative measures.
Notably, key exemptions have been granted to business-to-business (B2B) transactions and group relief arrangements.
Additionally, construction services, leasing and rental of residential buildings are also exempted.
The government aims to increase fiscal revenue by RM5 bil, at 0.24% of gross domestic product (GDP), with an annual target of RM10 bil per year (0.48% of GDP).
Rather than reintroducing the GST at 6% with an uplift of RM20 bil in revenue, the government has opted to enhance the SST, as it can be implemented quicker.
The impact on inflation is expected to be limited, given the targeted nature of the SST adjustments, which primarily apply to non-essential items typically consumed by higher-income households.
According to MOF, the consumer price index is projected to remain within the forecast range of 2.0-3.5%.
The expanded SST highlights the government's commitment to fiscal consolidation, with the 2025 fiscal deficit target maintained at 3.8% of GDP (2024: -4.3% of GDP).
The government also intends to rationalise the RON95 through a more efficient and targeted subsidy framework.
While details are still being finalised, concerns remain over its complexity. Nonetheless, the government is committed to protecting at least 85-90% of household from significant price increase. —June 10, 2025
Main image: CompareHero