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Daily Express
4 days ago
- Business
- Daily Express
Revised SST will have no impact on low-to-middle income earners, says economist
Published on: Thursday, June 12, 2025 Published on: Thu, Jun 12, 2025 By: Nora Mahpar, FMT Text Size: 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. Advertisement 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. * Follow us on our official WhatsApp channel and Telegram for breaking news alerts and key updates! * Do you have access to the Daily Express e-paper and online exclusive news? Check out subscription plans available. Stay up-to-date by following Daily Express's Telegram channel. Daily Express Malaysia
New Straits Times
24-05-2025
- Business
- New Straits Times
RON95 subsidy to stay, but economists urge caution over long-term impact
KUALA LUMPUR: The government's decision to maintain the subsidised price of RON95 petrol for Malaysians is expected to shield lower- and middle-income households from immediate inflationary pressures. However, economists warn that the long-term implications of blanket subsidies could strain national finances and encourage illicit activities such as fuel smuggling. Universiti Teknologi Mara's Malaysian Academy of SME and Entrepreneurship Development coordinator, Dr Mohamad Idham Md Razak, said the continued use of blanket subsidies distorts resource allocation, weakens incentives for energy efficiency, and diverts funds from essential sectors such as infrastructure and education. He said that while maintaining the current system may serve short-term political interests, it risks worsening budget deficits, potentially forcing future tax hikes or cuts to critical public services. "The decision to keep RON95 petrol prices stable prevents immediate inflationary effects on lower- and middle-income Malaysian households, who are significantly affected by fuel price changes. "By selectively removing subsidies for foreigners while maintaining them for Malaysians, the government could enhance fiscal efficiency through reduced subsidy leakage, potentially saving up to RM8 billion annually. "This targeted subsidy approach supports equity by ensuring that subsidised fuel benefits those most impacted, rather than enabling cross-border arbitrage," he told the New Straits Times today. Idham added that targeted policies help curb wasteful spending and avoid direct financial burdens on domestic consumers, while also reducing inflationary risks. To address enforcement challenges, including smuggling and resale, he proposed mechanisms such as dual pricing or MyKad-based identity verification. "When properly implemented, such a system allows savings to be redirected towards social programmes or infrastructure projects, promoting broad-based economic growth. "This policy should be part of a wider subsidy reform strategy to avoid sudden market disruptions and ensure long-term stability in the energy sector," he said. Echoing his views, Universiti Putra Malaysia Business School economist Dr Ida Md Yasin said the inflation risk remains low, as most goods and services linked to RON95 prices are currently unaffected. However, she pointed to a more pressing concern, the wide gap between Malaysia's subsidised fuel price and global market rates. "The world market price of RON95 is around RM5 per litre, while the domestic retail price stands at RM2.05. This significant price difference encourages smuggling. "People are smuggling petrol out of Malaysia to sell it elsewhere, meaning the subsidy ends up benefiting non-Malaysians instead of Malaysians," she said. Earlier today, Prime Minister Datuk Seri Anwar Ibrahim assured that the government would not raise RON95 petrol prices for Malaysians. He said a proposal to raise the price had previously been presented to the cabinet, but he had rejected the suggestion. During the tabling of Budget 2025 on Oct 18, Anwar announced plans for targeted RON95 subsidies, expected to be implemented by mid-year. He said the measure could save up to RM8 billion annually, noting that 40 per cent of RON95 subsidies are currently enjoyed by foreigners and the ultra-wealthy. The savings, he added, would be channelled towards improving the people's well-being through investments in education, healthcare, and public transport.
