Expanded SST seen as fairer tax reform, but concerns remain over inflation and compliance

Borneo Post

17-06-2025

The expanded Sales and Service Tax (SST) kicking in on July 1 is seen as a fairer tax framework . — Malay Mail photo
KUCHING (June 17): The expanded Sales and Service Tax (SST) kicking in on July 1 is seen as a fairer tax framework compared to the Goods and Services Tax (GST) especially for lower-income groups.
Unlike the broad-based GST, the revised SST is more targeted and excludes most essential goods.
Instead, it introduces a five to 10 per cent tax on selected luxury items such as imported seafood, high-end electronics, and private healthcare or education.
Sarawak Business Federation (SBF) secretary-general Dato Jonathan Chai said this structure is a step in the right direction.
'By exempting essential items, the revised SST framework aims to protect vulnerable groups and minimise the regressive nature of indirect taxes,' he told The Borneo Post.
Similarly, National Consumer Action Council (MTPN) Sarawak chairman Wynson Ong echoed the view, stating that this system better protects vulnerable groups while balancing the government's fiscal needs.
'From a consumer standpoint, this system can help reduce the tax impact on essential items, thereby protecting low-income groups.
'While every taxation system has its own structure and objectives, we believe the ultimate goal must be to strike a balance between national revenue needs and the public's ability to spend reasonably.
'This helps ensure that daily necessities remain affordable and are not affected by taxation. This approach reflects concern for the public's cost of living while maintaining the country's fiscal responsibility,' said Ong.
Datuk Jonathan Chai
However, Chai cautioned that the expanded SST will still exert some inflationary pressure on consumer prices, particularly on selected non-essential goods and services now included under the new coverage, namely leasing, construction, finance, private healthcare, education and beauty.
He said that these effects may not be immediately obvious but could accumulate over time, especially in sectors where services are now being taxed.
In stating this, he stressed that the effectiveness of this approach depends heavily on clear implementation and transparent communication.
'Uncertainty around which goods and services are taxed can create confusion among both consumers and businesses.
'Therefore, we urge the government to provide clearer guidance and continuously review the list of taxable items to ensure it remains relevant and fair,' he said.
Chai also raised concerns about the compliance burden on small and micro businesses especially in Sarawak.
'Many small and micro businesses in Sarawak operate with limited resources and are still recovering from post-pandemic challenges.
'While the grace period is welcomed, the compliance costs and administrative burden of transitioning to the expanded SST framework remain a concern for them,' he said.
As such, SBF recommends raising the SST registration threshold from RM500,000 to RM2 million for affected sectors like rental, leasing, finance and beauty services. This would exempt more micro businesses and give them space to grow.
SBF also urged the government to conduct outreach programmes to help businesses adjust to the new framework.
In addition, Chai said clear enforcement is vital to prevent opportunistic price hikes.
'We recommend that the Ministry of Domestic Trade and Cost of Living strengthen its enforcement and monitoring mechanisms to ensure that price adjustments are justifiable and not opportunistic,' he said.
He also noted that some goods and services now taxed are used by the B40 group which could contradict the tax's aim of protecting vulnerable households.
Public awareness campaigns, he added, are crucial to help consumers understand what falls under SST and to discourage unjustified price increases.
SBF further proposed creating more platforms for industry dialogue with policymakers to clarify grey areas in the tax regime and reduce compliance risks.
'This would not only reduce ambiguity but also help mitigate compliance risks and potential consumer backlash,' he said.
Wynson Ong
On the ground, Ong noted that traders in Sarawak are gradually adjusting to the new system and have shown a positive attitude in complying with current regulations.
'That said, rural businesses still need stronger technical support and clearer guidance to ensure that this transition take place fairly and inclusively,' he said.
He further said MTPN will continue to monitor the rollout to ensure traders don't exploit the tax by hiking prices unfairly.
Meanwhile, Kenanga Investment Bank Bhd (Kenanga Research) also welcomed the targeted nature of the revised SST in a recent research note.
The research house believe the changes are strategically designed to shield most Malaysians from higher tax burdens especially during uncertain economic times at a macro level.
The house highlighted that the exemptions on business-to-business transactions, such as in construction, leasing and finance, would help reduce the cascading tax effect.
This avoids compounding effect on the SST costs as the goods go through the supply chain, it said.
However, the research house noted that the sales tax on industrial machinery has increased to five per cent, which could affect capital investments.
Furthermore, newly taxed discretionary items include king crab, salmon, cod, truffle mushrooms, imported fruits, essential oils, silk fabrics and industrial equipment.
Beauty services will also now be taxed at 8 per cent for providers earning RM500,000 or more annually.
All told, analysts with the firm expects limited impact on consumer-focused businesses. GST National Consumer Action Council sarawak business federation SST