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PETALING JAYA: Business groups are urging caution over the proposed expansion of the Sales and Service Tax (SST), citing concerns about its impact on competitiveness and inflation.
The Federation of Malaysian Manufacturers (FMM) has called on the government to postpone the planned expansion, warning that the move could exacerbate rising business costs and further burden consumers.
FMM president Tan Sri Soh Thian Lai said the timing of the proposed expansion, scheduled for June 1, 2025, is “not conducive” due to significant external and domestic pressures.
“Given the current economic landscape – with the imposition of US reciprocal tariffs and the upcoming electricity tariff review in July – now is not the time to push forward with a major tax expansion,” he said.
He cautioned that an expanded SST would inevitably raise the cost of doing business, reduce Malaysia’s industrial competitiveness and increase the financial burden on consumers through higher retail prices.
“We must not ignore the fact that higher operational costs will ultimately be passed on to consumers. That’s why we are urging the government to first conduct a total and comprehensive study before any expansion takes place,” he said.
He also called on authorities to reassess the taxation of essential goods and raw materials used in industrial production, particularly in food and critical services.
“These are not luxuries; they are necessities that affect everyone. Taxing them without careful review would be counterproductive,” he said.
In addition, FMM is urging the government to expand and simplify input exemptions for manufacturers producing non-taxable or mixed-supply products.
Soh clarified the need for a clearer system to prevent administrative burden and confusion.
He also proposed a 12-month grace period for newly taxable businesses, supported by targeted education and outreach.
“Businesses need time and support to adjust. A grace period would allow for smoother compliance and minimise disruptions,” he said.
FMM also requests an exemption for taxable services rendered to licensed manufacturers.
Soh suggested the change could be implemented using SST registration numbers on supplier invoices to avoid double taxation and to facilitate audits by the Customs Department.
“If these concerns are not fully addressed, we strongly believe the SST expansion should be deferred beyond June 1. Rushing into it could derail our economic recovery efforts,” he said.
Despite the concerns, FMM said it is willing to work closely with the Finance Ministry and Customs to ensure the tax system is both practical and aligned with Malaysia’s economic goals.
“We’re not opposing tax reform – we’re asking for a framework that is fair, sustainable and truly supportive of Malaysian industry,” he added.
Small and medium enterprises (SMEs) are also urging the government to take a more consultative and industry-specific approach.
SME Association of Malaysia president Datuk Chin Chee Seong said the delay was welcome but warned that hastily implementing the tax without addressing underlying challenges could hurt businesses and consumers alike.
“I think the government needs to seriously look into what’s affecting the market – the rising cost of doing business – and study where they can help us, rather than just imposing tax,” he said.
He noted that any tax introduced on businesses would inevitably be passed on to consumers at a time when spending is already sluggish and global headwinds, such as US-China tariffs, are creating uncertainty.
“Even if you impose a tax, I believe it will go back to the consumer. And right now, people are already slowing down their spending,” he said.
He called on the government to take a more granular approach to its engagements with industries and not rely solely on town halls.
Chin acknowledged that many SMEs were already moving towards automation and digitalisation, but said these measures alone would not be enough to overcome rising operational costs and foreign competition.
“In the long run, without trade barriers, we’ll still face high costs and stiff competition. That’s why SMEs need to develop unique products, build strong branding and look beyond the domestic market,” he added.
Currently, Malaysian SMEs contribute only about 13% of the country’s total exports.
Chin believes this figure could grow if the government provided better support for export efforts.
“The first step is to encourage buying Malaysian products. Second, help us penetrate foreign markets – BRICS countries, the Middle East and Asean. But we need more incentives,” he said.
He pointed out that government agencies such as the Malaysia External Trade Development Corporation (Matrade) should be better funded to carry out export promotion.
Meanwhile, the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) called on the government to delay the expansion of the SST until the global trade environment becomes clearer.
Its treasurer-general, Datuk Koong Lin Loong, said the SST expansion should not proceed this year as the economic climate remains volatile.
“When Budget 2025 was being drafted last year, Malaysia had not yet experienced the impact of US tariffs. Although the tariffs have been temporarily paused, their future remains uncertain. So, deferring the SST expansion is the best course of action for now,” he said.
Koong stressed that businesses need clarity, especially on the full scope of the SST expansion.
“The government has yet to inform us clearly about the final scope. We need more detailed engagement. SST may have been seen as a simpler tax system, but it’s outdated and not suitable for today’s economic landscape.
“We believe the GST is a more efficient system, as it is a consumption tax rather than a business-to-business (B2B) tax like SST, which adds to the cost of doing business,” he added.
He also pointed out that the government expects to collect between RM4.5bil and RM5bil in additional revenue through the expansion but warned that doing so could do more harm than good.
“At a time when the global market is dealing with geopolitical uncertainty and tariff disruptions, we should not be increasing the cost of doing business or placing a heavier burden on the people,” he said.
Meanwhile, MCA vice president Datuk Seri Dr Wee Jeck Seng said that while it may seem that Malaysia will not be directly impacted by US trade decisions, such shifts affect global supply chains and investor sentiment.
“As a trade-dependent nation, Malaysia is particularly vulnerable to external shocks, which can quickly lead to ripple effects throughout our economy,” he said.
“Forcing through this expansion when businesses are not yet ready, the economy remains shaky and consumer confidence is still low could have unintended and far-reaching negative consequences – from price hikes to reduced hiring and investment activity,” he added.
Deputy Finance Minister Lim Hui Ying said the ministry is still reviewing the guidelines and scope.
“We are also in the process of engaging with stakeholders. If there is any further information on this, the ministry will make an announcement,” she added.
Source: https://www.thestar.com.my/news/nation/2025/04/30/local-international-pressures-fuel-calls-to-delay-proposed-sst-expansion