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Malaysians fret over hotpot of bad economic news, as govt set to expand sales and services tax
Malaysians fret over hotpot of bad economic news, as govt set to expand sales and services tax
SUBANG, Selangor - Avocados from Australia, salmon from Norway, king crabs from Alaska, and mangoes from Thailand have become hot potatoes in Malaysian politics.
Prime Minister Anwar Ibrahim is expanding the list of imported foods that will be taxed from July 1 in an effort to boost government coffers, but is facing howls of protest from Malaysians concerned that the move would feed inflation and curb sales.
' Some 70 per cent of our stock is imported, with strawberries and apples from Korea, for example,' Jennifer Choo, 20, who was manning the cashier counter at Soon Seng Ever Fresh Fruits owned by her parents.
'Customers expect prices to go up by RM1 to RM2 (S$0.30 to S$0.60) per fruit,' she told The Straits Times on June 15. The shop in Selangor state's Subang township currently sells 250g of strawberries from the US for RM19.80, while five South Korean apples go for RM12.
The government announced on June 9 that it will expand the list of imported fruits and 'premium seafood' that will be taxed by 5 per cent. These are now tax-free.
In March 2024, Malaysia's sales and services tax (SST) was revised from 6 per cent to 8 per cent.
The widening of the SST in July 2025 will also include a wide range of businesses including the leasing or rental of premises, construction, financial services, private healthcare and beauty services.
The expansion of the SST piles a hotpot of bad news on the economic front: The government plans to 'slightly increase' electricity tariffs for the industial sector on July 1.
In addition, it is going ahead with reducing subsidies for the widely used RON 95 petrol by the end of 2025.
The government is also mulling whether to stop commercial eateries from using subsidised cooking gas, a scheme that would jack up the cost of eating out.
All these are part of a broader move by Datuk Seri Anwar, who is also the Finance Minister, to wean the public off government subsidies and boost public revenues.
Essential items such as rice, meat, flour, cooking oil, local fruits and vegetables are exempted from taxes.
Meanwhile, national petroleum company Petronas is shedding some 10 per cent of its workforce, or 5,000 people, as profits are sharply down due to weak oil and gas prices globally. Petronas is expected to struggle to maintain its annual RM32 billion dividend payments to the government, comprising some 10 per cent of Malaysia's annual budget outlay.
And hovering over the whole economy is the uncertainty over how badly the Malaysian economy would be hit by US tariffs.
The Malaysian opposition used harsh words to describe the government's SST plan. Perikatan Nasional chief Muhyiddin Yassin slammed the government for 'sucking the blood' of the people by taxing commonly eaten fruits. Parti Sosialis Malaysia warned that the expaned SST scheme could lead to the downfall of Mr Anwar's government at the next general election.
When presenting the 2025 Budget in October last year, the government said that the proposed SST expansion could generate an additional RM5 billion to bring the consumption tax collection to RM51.7 billion.
Defending his government's plan, Mr Anwar said on June 15: 'Recently, it was in (the news) that on imported goods, bananas would be taxed. People got mad. People toil to grow (bananas) in Lumut, then we have to import bananas?'
He added, at an event in Lumut, Perak: 'If you have a high income and want to eat avocados, go ahead. But pay a bit more, (because) we are taxing avocados.'
Kuala Lumpur Fruits Wholesalers Association President Ms NM Chin, 61, said the nutritious imported fruits are essential for maintaining a healthy diet and should not be taxed.
'We want to appeal to the Finance Ministry next week to halt the SST imposition. Our domestic fruit production is insufficient to meet market demand. Some 70 per cent of fruits sold here is imported,' the veteran importer told ST at the Kuala Lumpur Wholesale Market in Selayang, on June 17.
She was concerned that if the Customs Department levies SST at the port, wholesalers would have to absorb losses should the fruits perish or become unappeal ing before they are put up for sale – in which case, sometimes 40 percent of the fruits in a 40-foot container could end up spoiled.
Malaysia's fruit trade deficit reached RM2.6 billion in 2023 due to high demand for temperate fruits such as apples, oranges and grapes, which are not suitable for cultivation in tropical weather.
The Finance Ministry's secretary-general Johan Mahmood Merican looked at the issue from another angle. The higher prices for imported fruits would boost demand for local fruits, thus supporting local farmers while reducing imports, he was quoted as saying by online news site Free Malaysia Today on June 16.
Ms Ng Sue Lynn, head of indirect tax at KPMG in Malaysia, said that consultations had been conducted with the relevant stakeholders, with a focus on taxing discretionary spending.
'The purpose of the SST expansion is to make the tax structure more progressive by broadening the tax base, while ensuring that the targeted approach does not burden the ordinary Malaysian,' Ms Ng told ST.
A self-proclaimed heavy fruit consumer, Mr Hanapiee Zamzami, said the expanded SST's implementation will reduce his purchasing power and force him to opt for local varieties.
'I will switch to Cameron Highlands strawberries at RM20 per 250gms rather than Japanese strawberries, which fetch up to RM80. Actually, even local fruits like watermelon cost RM4 now – double compared to two years ago,' the 32-year-old consultant told ST.
Asking the government to consider the deferment of SST expansion, Associated Chinese Chambers of Commerce and Industry of Malaysia President Ng Yih Pyng said Malaysian businesses are facing higher operation cost s and domestic economic uncertainty amid 'US tariff uncertainty and potential global economic slowdown'.
For JM Beauty salon owner Low Kit Min in Kuala Lumpur, the 8 per cent SST from July could affect her business badly.
She plans to adapt to the new environment by offering attractive promotions to offset the additional cost for customers.
'Normally, our clients would sign up for a package with us, for example, getting six services for RM1,200. We will ask customers to bear the extra RM96 (of taxes) , but a free manicure service will be given,' the 29-year old told ST.
Lu Wei Hoong is Malaysia correspondent at The Straits Times, specialising in transport and politics.
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