SST and new electricity tariffs: Relief measures to ease transition

New Straits Times

21 hours ago

PUTRAJAYA: As Malaysia enters the second half of 2025, the government's fiscal recalibration through an expanded Sales and Service Tax (SST) and revised electricity tariffs mark a strategic move to strengthen national finances while prioritising the welfare of the rakyat.
Despite early concerns over rising living costs, the rollout includes various measures designed to cushion the impact, especially for households and small businesses.
From tax exemptions on personal care services such as haircuts, facials and manicures, to anticipated cash assistance and a more progressive electricity tariff system where higher usage brackets are charged more, the government appears to be listening and responding to public sentiment.
For the average Malaysian, the mood is gradually shifting from anxiety to cautious optimism, as support mechanisms are in place to help those most in need.
SST expansion with built-in relief
The government has expanded the SST to cover more services and selected imported goods as part of efforts to boost revenue. However, following engagement sessions and public feedback, Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim recently announced tax exemptions for four imported fruits commonly found on Malaysian dining tables - apples, oranges, mandarin oranges and dates.
He also raised the SST registration threshold for leasing and financial services from RM500,000 to RM1 million, offering relief to smaller businesses. Meanwhile, services such as haircuts, facials and manicures have been excluded from the expanded SST, a modest but welcome move that helps maintain the affordability of everyday self-care.
"This move helps maintain the affordability of key food items and supports household purchasing power," said Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid.
Another key policy change taking effect this month is the revised electricity tariff, which affects more than 23.6 million domestic users in Peninsular Malaysia.
The new rates, effective from July 1, 2025 until Dec 31, 2027, fall under the Incentive-Based Regulation (IBR) framework under Section 26 of the Electricity Supply Act 1990. The Energy Commission has set the average base tariff rate at 45.40 sen per kilowatt-hour, slightly lower than the 45.62 sen approved in December 2024.
This adjustment is expected to reduce overall electricity costs while promoting energy-saving habits, particularly during off-peak hours.
External challenges remain
Despite domestic reforms, global uncertainties continue to weigh on Malaysia's economic outlook. Mohd Afzanizam warned that the upcoming expiry of the United States' temporary suspension of reciprocal tariffs on July 9 could increase pressure on Malaysian exports if Washington reimposes steep duties.
However, the administration of US President Donald Trump has signalled the possibility of extending the suspension, a move that could offer short-term relief to Malaysian exporters, particularly in the electrical and electronics, palm oil, rubber and machinery sectors.
Economists say such an extension would reflect a more measured US trade stance and could help stabilise global market sentiment, which is a much-needed breather for emerging economies navigating inflation, currency volatility and geopolitical risks.
At the same time, ongoing tensions in the Middle East continue to fuel oil price fluctuations, adding pressure to Malaysia's fuel subsidy rationalisation efforts. Global price volatility could increase consumer costs and complicate the implementation of subsidy reforms.
Relief measures and stronger fiscal footing
While the government's fiscal reforms are geared toward long-term stability, public sentiment remains sensitive to immediate cost-of-living issues. Uncertainty still lingers over the implementation of RON95 fuel subsidy rationalisation and the full impact of SST and electricity adjustments on consumer behaviour.
Nevertheless, there are signs of relief on the horizon.
Mohd Afzanizam noted that there may be room for monetary easing, including a potential 25 basis points cut in the overnight policy rate (OPR) as early as this month (July 9). In a separate move, Bank Negara Malaysia's decision in May to reduce the statutory reserve requirement by 100 basis points had already injected about RM19 billion into the banking system, providing liquidity to support economic activity.
"On the fiscal front, the government's disciplined approach appears to be yielding results. The fiscal deficit narrowed to RM22 billion or 4.5 per cent of gross domestic product in the first quarter of 2025, down from RM26 billion or 5.7 per cent in the same period last year.
"Savings from the diesel subsidy rationalisation and SST reforms introduced in 2024 have opened up fiscal space, enabling the government to increase targeted assistance. The combined allocation for Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah has been raised to RM13 billion this year from RM10 billion in 2024.
"This careful balancing act is supporting investor confidence and helping to preserve Malaysia's sovereign credit ratings," he said.
International rating agencies like Moody's, S&P, and Fitch are expected to maintain Malaysia's current sovereign ratings, a crucial factor in attracting long-term foreign investment.
As Malaysians adjust to this new fiscal environment, the coming months will test not only household resilience but also the government's ability to sustain reforms while protecting the wellbeing of the rakyat.