Revised SST will have no impact on low-to-middle income earners, says economist

Free Malaysia Today

a day ago

The zero sales tax rate for basic necessities will be maintained while a 5% to 10% rate will be imposed on non-essential goods from July 1.
PETALING JAYA : The revision of the targeted sales and service tax (SST) and the expansion of its scope to cover more items will not have any impact on the low-to-middle income group, according to an economist.
On the other hand, Idham Razak of Universiti Teknologi Mara said, widening the definition of luxury goods to include semi-basic necessities such as electrical products will weigh down on the middle-income earner.
Idham told FMT that exempting basic necessities and services from the SST could even help to cushion any sharp increase in the cost of living, if it is implemented progressively.
He noted that the low-to-middle income earners generally set aside a huge portion of their income for basic necessities like food, education and medical expenses.
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 affected, he added.
Idham said the RM5 billion in government revenue expected to be generated from the expansion of the SST would bring long-term benefits.
'These funds can be channelled back to the people via the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (Sara) cash aid initiatives,' he said.
In November, finance minister II Amir Hamzah Azizan said that with the expansion of the SST, government revenue from the tax would rise to RM51.7 billion in 2025, from RM46.7 billion in the previous year.
Idham said the additional revenue would enable the government to finance infrastructure development without having to dip into the funds for other important sectors.
'It (the additional revenue) creates fiscal space for targeted subsidies or incentives to encourage economic mobility,' he explained.
The additional revenue would also help to reduce the budget deficit, debts and liabilities, he said.
'In short, a targeted taxation system has the potential to protect the low-income earners and complement sustainable and inclusive fiscal policies,' Idham added.
On Monday, the finance ministry said that the zero tax rate for basic necessities will be maintained while a 5% to 10% rate will be imposed on non-essential goods from July 1.
The service tax, on the other hand, will be expanded to include rent, lease, construction, financial services, private healthcare and education.
Aimi Zulhazmi Abdul Rashid of Universiti Kuala Lumpur said the revision for certain products and services could see inflation rise, although it would still be manageable.
He said the objective of revising the SST and expanding its scope was the same as that for the goods and services tax (GST) that was introduced in 2015 and was in force until it was replaced by the SST in 2018.
'The aim is to increase government revenue,' he added.