Business groups warn SST hike risks derailing economic recovery

New Straits Times

17-06-2025

KUALA LUMPUR: Malaysia's leading business and retail associations are calling on the government to defer the upcoming expansion of the Sales and Service Tax (SST), set to take effect on July 1, 2025, citing serious concerns about its potential impact on the country's still-recovering economy.
In a joint statement, six major associations urged the government to reconsider the proposed 8 per cent SST on commercial rental and leasing services, which they warn could trigger inflation, harm small and medium enterprises (SMEs), deter investment, and dampen consumer confidence.
"As the collective voice of Malaysia's business and retail sectors, we recognise the importance of fiscal consolidation; the timing, magnitude, and scope of this tax measure are gravely misguided. The policy, in its current form, threatens to undo the very economic progress we have painstakingly rebuilt over the past two years.
"Worse still, this move sends the wrong signal to domestic and foreign investors, raising doubts about policy consistency and the government's commitment to fostering a business-friendly environment."
The statement was issued by the SME Association of Malaysia, the Malaysia Retail Chain Association (MRCA), the Malaysia Retailers Association (MRA), the Bumiputra Retailers Organisation Malaysia (BRO), the Malaysia Shopping Malls Association (PPKM), and the Federation of Malaysia Business Associations (FMBA).
"Collectively, our six associations represent tens of thousands of businesses and millions of workers across Malaysia. We strongly urge the government to pause and reassess the current path of the SST expansion, particularly the rental and leasing component, which is poised to unleash inflationary pressure, disrupt business sustainability, and strain the rakyat.
"The business community stands ready to support national fiscal goals, but such goals must be achieved through fair, practical, and inclusive policymaking. We call on the government to act decisively, responsibly, and in the national interest before irreversible damage is done to the economic ecosystem that supports jobs, innovation, and long-term growth.'
The statement highlighted that many businesses across key sectors, including retail, F&B, logistics, manufacturing, healthcare, and education, are already grappling with a sharp rise in operating costs, including a minimum wage increase from RM1,500 to RM1,700, diesel subsidy rationalisation that caused a 55.8 per cent jump in fuel prices, higher electricity and gas tariffs, and new stamp duties and levies.
Additional burdens such as mandatory e-Invoicing, an extra 2 per cent EPF contribution for foreign workers, rising raw material prices, a weaker ringgit, and elevated interest rates are also straining business sustainability, particularly for SMEs that lease their premises.
Adding an 8 per cent SST on rental and leasing services will significantly raise operational costs for SMEs and retailers, particularly those who lease their premises. Ultimately, this burden will be passed on to consumers, fuelling inflation and weakening household spending power, the associations warned.
They also cautioned that the rising cost pressures may force many small businesses to downsize or shut down, triggering a wave of closures, job losses, and a deeper slowdown in domestic economic activity.
"Such volatility could directly impact Malaysian exporters, especially SMEs that are part of global value chains, and further erode export competitiveness, placing additional strain on revenue and jobs."
On the global front, the groups pointed to growing trade uncertainty, particularly the potential return of US tariffs, which could further undermine Malaysia's export competitiveness, especially for SMEs integrated into global value chains.
The associations argued that the current SST framework lacks the transparency and efficiency of the previous Goods and Services Tax (GST) system, which allowed for input tax credits and avoided cascading taxation across supply chains.
Under SST, costs pile up at every stage, leading to higher prices for goods and services. For SMEs operating on thin margins, this model is unsustainable and discourages reinvestment, expansion, and job creation, they said.
While acknowledging the flaws of the former GST, the associations reiterated their support for a reformed version, which many in the business community view as a more equitable and growth-friendly tax system.
GST enabled businesses to claim input tax credits and enhanced overall tax administration efficiency, they said.
Many local and international businesses have since advocated for the reinstatement of a reformed GST, rather than continued reliance on the regressive SST model, which they say hampers competitiveness and economic growth, the association said.
"We strongly urge the government to take into serious consideration the genuine hardships currently faced by businesses, especially in these challenging economic times. It is imperative that any tax policy or adjustment be approached with empathy and practicality, with the aim of ensuring that it does not become an added burden on already struggling enterprises," the statement concluded.
The associations called for a more consultative approach to tax reform that prioritises business sustainability, national competitiveness, and long-term growth.