logo
Towards economic resilience: Malaysia's SST expansion is a tough but necessary step if done right — Goh Lim Thye

Towards economic resilience: Malaysia's SST expansion is a tough but necessary step if done right — Goh Lim Thye

Malay Mail12 hours ago
JULY 7 — On 1 July 2025, Malaysia implemented a revised and expanded Sales and Service Tax (SST) under the Madani economic framework. While this move had been anticipated by policymakers and industry players, it nevertheless sparked considerable public backlash, particularly among middle-income and urban households already coping with rising living costs. Such frustration is understandable. However, it is also crucial to examine the rationale, intended outcomes, and broader implications of the revised SST through a clear, evidence-based lens. Though not without flaws, the policy represents an important step in Malaysia's broader effort to strengthen fiscal stability and could deliver long-term benefits if implemented thoughtfully and fairly.
The SST, reintroduced in 2018 to replace the GST, has been criticised for its narrow tax base and inefficiencies in enforcement. The revised SST seeks to correct some of these weaknesses. The new measures include an increase in the service tax rate from 6 per cent to 8 per cent for selected sectors, excluding essential services such as food and beverage, telecommunications, logistics, and parking. It also expands the scope of taxable services to include private clubs and karaoke centres. Importantly, the government responded to public sentiment by exempting daily essentials such as rice, vegetables, fish, eggs, and certain imported fruits like apples and oranges from sales tax. Additionally, the threshold for SST registration for financial and rental services was raised from RM500,000 to RM1 million, shielding many MSMEs from the expanded tax burden.
Malaysia climbed 11 positions to 23rd in the 2025 IMD World Competitiveness Ranking, its highest placement since 2020. Fiscal management is one of the key pillars in this ranking. A stronger tax structure that supports reduced fiscal deficits and sustainable debt management sends a positive signal to investors and rating agencies. — Unsplash pic
From a macroeconomic standpoint, Malaysia's tax-to-GDP ratio was just 12.2 per cent in 2022 and has since risen modestly to 13.2 per cent as of Q3 2024. This remains significantly lower than Thailand (16 per cent) and well below the OECD average of over 30 per cent. Such a low tax base constrains the government's ability to fund development expenditure and social protection sustainably. The 2025 Budget estimates an additional fiscal revenue of RM5 billion from newly included items under the revised SST, helping to close the fiscal gap. With Malaysia's national debt standing at RM1.22 trillion — around 63 per cent of GDP as of April 2024 — and the fiscal deficit narrowing from 5.0 per cent in 2023 to 4.1 per cent in 2024, enhancing domestic revenue mobilisation is not a policy choice but a necessity for fiscal resilience. The government has targeted a further reduction in the deficit to 3.8 per cent by 2025.
This strategy is not unique to Malaysia. Many economies have broadened their indirect tax systems in the wake of the pandemic. Singapore currently imposes a 9 per cent Goods and Services Tax (GST) as of January 2024, having increased it from 8 per cent the year before. This rate is higher than Malaysia's and reflects a commitment to broad-based consumption taxation while maintaining redistributive policies through schemes like the GST Voucher and permanent U-Save utilities rebates. Indonesia applies a Value Added Tax (VAT) of 11 per cent as of 2022, up from 10 per cent, and is considering increasing it further to 12 per cent by 2025. This reflects an ongoing effort to strengthen revenue mobilisation and support long-term fiscal sustainability. New Zealand runs a 15 per cent GST with minimal exemptions but offsets regressivity through targeted welfare transfers and a progressive income tax system. These international examples underscore that indirect tax systems can be sustainable if designed and implemented within a broader framework of redistribution and transparency.
Nonetheless, the regressivity of indirect taxes remains a valid concern. Lower-income households tend to spend a larger portion of their income on consumption and are thus more vulnerable to price hikes. To address this, it is essential that part of the revenue generated from SST expansion be reinvested into targeted assistance. Strengthening direct cash transfer schemes like Bantuan Tunai Rakyat (BTR), expanding food and transport subsidies, and enhancing public healthcare accessibility are crucial to offset the distributional impact of the tax. Moreover, policymakers must ensure there are no leakages in revenue deployment. Effective monitoring by the Auditor General and the Public Accounts Committee (PAC), alongside the use of digital public finance dashboards, would enhance accountability and trust.
An often overlooked dimension of tax reform is its contribution to macroeconomic stability and global competitiveness. Malaysia climbed 11 positions to 23rd in the 2025 IMD World Competitiveness Ranking, its highest placement since 2020. Fiscal management is one of the key pillars in this ranking. A stronger tax structure that supports reduced fiscal deficits and sustainable debt management sends a positive signal to investors and rating agencies. If the additional SST revenue contributes to narrowing the deficit from 5 per cent to the targeted 3.8 per cent of GDP over the medium term, it could enhance Malaysia's sovereign credit outlook and investor confidence.
Still, effective policy implementation requires clear and consistent communication. The government's decision to reverse the taxation of beauty services and exempt select fruits after public outcry shows policy responsiveness but also highlights the need for better stakeholder engagement. Economic policy, particularly one that affects consumer behaviour and firm-level pricing decisions, must be grounded in transparent consultation. Deliberative dialogue with civil society, chambers of commerce, and think tanks can help preemptively identify blind spots and build public buy-in.
Ultimately, the revised SST is a step toward fiscal sustainability and institutional maturity, not an endpoint. It must be accompanied by broader structural reforms improving tax administration efficiency, reducing procurement leakages, and adopting medium-term expenditure frameworks. Equally important is ensuring that taxation is linked to visible and equitable service delivery. Citizens are more likely to accept taxation if they see tangible returns in the form of improved infrastructure, quality education, and accessible healthcare.
In conclusion, while the expanded SST is far from perfect, dismissing it outright would ignore the urgent fiscal imperatives confronting Malaysia. The challenge lies in translating tax collection into inclusive development. If additional revenues are allocated with integrity and directed toward closing equity gaps, the SST reform could represent not merely a tax hike, but a pivot toward a more resilient and just economic model.
* Dr Goh Lim Thye is a senior lecturer at the Department of Economics, Faculty of Business and Economics, Universiti Malaya, and may be reached at [email protected]
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

Pol-sec denounces Opposition's narrow view on PM Anwar's foreign visits
Pol-sec denounces Opposition's narrow view on PM Anwar's foreign visits

Borneo Post

time2 hours ago

  • Borneo Post

Pol-sec denounces Opposition's narrow view on PM Anwar's foreign visits

Ahmad Farhan Fauzi KUALA LUMPUR (July 7): Accusations from opposition figures labeling Prime Minister Datuk Seri Anwar Ibrahim's official overseas visits as mere 'sightseeing trips' reveal a narrow-minded misunderstanding of the strategic importance behind these diplomatic missions. Political secretary to the Prime Minister, Datuk Ahmad Farhan Fauzi, said such accusations reflect a lack of comprehension of the complex geopolitical and geo-economic challenges currently impacting the world, Malaysia, and its people. He emphasised that each official visit by the Prime Minister carries significant national agendas, including attracting high-quality investments, strengthening strategic partnerships, opening new markets for Malaysian companies, and championing the voice of developing countries on global platforms such as BRICS. 'This is not a mere leisure trip. It is proactive economic and geopolitical diplomacy guided by a forward-thinking vision. 'The Prime Minister's economic diplomacy initiatives create strategic new economic opportunities, including resuming Free Trade Agreement (FTA) negotiations with the European Union (EU) and signing FTAs with EFTA countries,' he said in a Facebook post today. Ahmad Farhan highlighted that Malaysia's proactive approach has yielded tangible results, with approved investments rising by 14.9 per cent to RM378 billion, and trade performance increasing by 9.2 per cent to RM2.88 trillion in 2024. He noted the significance of this approach for Malaysia as an open economy, where the trade-to-GDP ratio stands at 130 per cent. 'In contrast, during the previous administration, the country's image was not progressive. History shows the political crises that unfolded then. 'The era of weak and uninspired leadership – likened to 'seekor belalang di tepi lautan' (a frog in a well), has passed since the MADANI government took office,' he added. Under MADANI's leadership, he said, Malaysia is once again viewed internationally as a principled, stable, and promising partner. Ahmad Farhan further said that Malaysia's effective foreign policy is evident through multi-billion ringgit investments, strategic agreements, and the Prime Minister's active participation in world-class economic and diplomatic forums. 'My advice to those narrow-minded opposition figures is to better understand the people. The public does not share your mindset, nor can they be deceived by distorted perceptions. 'The people are discerning and know who genuinely works for the country versus those who spread slander, sow division, and engage in 'politics without wisdom,'' he added. Currently, the Prime Minister is leading a Malaysian delegation on official visits to Italy, France, and Brazil since July 1, aimed at strengthening bilateral relations and enhancing trade and economic cooperation with these countries. This includes attending the BRICS Summit in Rio de Janeiro as a partner country and representing ASEAN 2025, advocating regional interests on issues such as global governance, artificial intelligence, climate, and health. – Bernama Ahmad Farhan Fauzi anwar ibrahim official visits opposition overseas

Najib gave conflicting answers over source of funds, court told
Najib gave conflicting answers over source of funds, court told

Free Malaysia Today

time2 hours ago

  • Free Malaysia Today

Najib gave conflicting answers over source of funds, court told

SRC International is suing Najib Razak and former CEO Nik Faisal Ariff Kamil for wrongfully receiving company property, and dishonestly and wrongfully conspiring to convert company property for their own use. KUALA LUMPUR : A lawyer for SRC International Sdn Bhd told the High Court today that former prime minister Najib Razak gave conflicting answers when confronted about the source of money that entered into his accounts more than 10 years ago. Lead counsel Lim Chee Wee said Najib had, in his testimony under oath, given various versions of the source of funds that entered his accounts when cross-examined. Submitting at the close of the SRC International trial, Lim said Najib had, in an affidavit affirmed in 2015, claimed that a 'personal donation' of US$700 million and another sum of RM42 million originating from SRC International had been channelled into his account by Gandingan Mentari Sdn Bhd and Ihsan Perdana Sdn Bhd without his knowledge. 'He first said the affidavit was 'very badly drafted', and then he said the admission was based on 'allegations at that time'. 'He later said that he was 'misled' and backtracked to say it was the information he received. And another version was that he was misled by media reporting,' Lim said after the defence had closed its case. SRC International is suing Najib and former CEO Nik Faisal Ariff Kamil for wrongfully receiving company property, and dishonestly and wrongfully conspiring to convert company property for their own use. A judgment in default of appearance has been entered against Nik Faisal. The suit originally included former chairman Ismee Ismail, as well as former directors Suboh Yasin, Shahrol Azral Ibrahim Halmi, Azhar Osman Khairuddin and Che Abdullah @ Rashidi Che Omar, as co-defendants. SRC International later dropped the case against them. However, they were added as third parties by Najib. Lim also said Najib never informed his Cabinet about the RM42 million he allegedly received, and that he continued to helm decisions involving SRC International. 'It cannot be said that he was acting in the country's interest, or that his actions can be downplayed to mere recklessness,' he said. The hearing continues before Justice Ahmad Fairuz Zainol Abidin on Tuesday, with Najib's lawyer, Shafee Abdullah, submitting in his defence, followed by lawyers appearing for the various third parties.

PM's political secretary slams 'narrow-minded' criticism of overseas visits
PM's political secretary slams 'narrow-minded' criticism of overseas visits

Sinar Daily

time2 hours ago

  • Sinar Daily

PM's political secretary slams 'narrow-minded' criticism of overseas visits

Malaysia's proactive approach has yielded tangible results, with approved investments rising by 14.9 per cent to RM378 billion and trade performance increasing by 9.2 per cent to RM2.88 trillion in 2024. 07 Jul 2025 07:50pm France's President Emmanuel Macron (L) welcomes Malaysia's Prime Minister Datuk Seri Anwar Ibrahim prior to a working dinner at the Elysee Palace in Paris on July 4, 2025. (Photo by Ludovic MARIN / AFP) KUALA LUMPUR - Accusations from opposition figures labeling Prime Minister Datuk Seri Anwar Ibrahim's official overseas visits as mere 'sightseeing trips' reveal a narrow-minded misunderstanding of the strategic importance behind these diplomatic missions. Political secretary to the Prime Minister, Datuk Ahmad Farhan Fauzi, said such accusations reflect a lack of comprehension of the complex geopolitical and geo-economic challenges currently impacting the world, Malaysia, and its people. Malaysia's Prime Minister Datuk Seri Anwar Ibrahim (R) and Brazil's President Luiz Inacio Lula da Silva greet each other during the BRICS Business Forum in Rio de Janeiro, Brazil, on July 5, 2025. BRICS leaders meeting in Rio de Janeiro from Sunday are expected to decry Donald Trump's hardline trade policies, but are struggling to bridge divides over crises roiling the Middle East. (Photo by Daniel RAMALHO / AFP) He emphasised that each official visit by the Prime Minister carries significant national agendas, including attracting high-quality investments, strengthening strategic partnerships, opening new markets for Malaysian companies, and championing the voice of developing countries on global platforms such as BRICS. "This is not a mere leisure trip. It is proactive economic and geopolitical diplomacy guided by a forward-thinking vision. "The Prime Minister's economic diplomacy initiatives create strategic new economic opportunities, including resuming Free Trade Agreement (FTA) negotiations with the European Union (EU) and signing FTAs with EFTA countries,' he said in a Facebook post today. Ahmad Farhan highlighted that Malaysia's proactive approach has yielded tangible results, with approved investments rising by 14.9 per cent to RM378 billion, and trade performance increasing by 9.2 per cent to RM2.88 trillion in 2024. He noted the significance of this approach for Malaysia as an open economy, where the trade-to-GDP ratio stands at 130 per cent. "In contrast, during the previous administration, the country's image was not progressive. History shows the political crises that unfolded then. "The era of weak and uninspired leadership - likened to 'seekor belalang di tepi lautan' (a frog in a well), has passed since the MADANI government took office,' he added. Under MADANI's leadership, he said, Malaysia is once again viewed internationally as a principled, stable, and promising partner. Ahmad Farhan further said that Malaysia's effective foreign policy is evident through multi-billion ringgit investments, strategic agreements, and the Prime Minister's active participation in world-class economic and diplomatic forums. "My advice to those narrow-minded opposition figures is to better understand the people. The public does not share your mindset, nor can they be deceived by distorted perceptions. "The people are discerning and know who genuinely works for the country versus those who spread slander, sow division, and engage in 'politics without wisdom,'' he added. Currently, the Prime Minister is leading a Malaysian delegation on official visits to Italy, France, and Brazil since July 1, aimed at strengthening bilateral relations and enhancing trade and economic cooperation with these countries. This includes attending the BRICS Summit in Rio de Janeiro as a partner country and representing ASEAN 2025, advocating regional interests on issues such as global governance, artificial intelligence, climate, and health. - BERNAMA More Like This

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store