SST expansion risks burdening Sabah SMEs — FSI
KOTA KINABALU (June 27): The Federation of Sabah Industries (FSI) expresses its concern over the recently announced Sales and Service Tax (SST) scope expansion effective 1st July 2025, cautioning that the move will further burden Sabah's SMEs and increase inflationary pressures within the state.
Sabah businesses are already operating in a high-cost environment compared to Peninsular Malaysia, grappling with elevated logistics, operational and infrastructure costs. The introduction of additional SST coverage at this point is expected to escalate the cost of doing business and ultimately be passed down to consumers.
'We welcome the Prime Minister's recent announcement to exempt apples and oranges from Sales Tax, which is a positive move for consumers. However, Sabahan businesses need more time to improve their operational cost structures before additional tax measures are imposed,' said Sylvester Chua, treasurer of the Federation of Sabah Industries and head of FSI's SST Technical Advisory Committee.
Chua added that the situation is further complicated by the upcoming implementation of the 2% Employees Provident Fund (EPF) contributions for foreign workers effective October 2025. While recognising it as a good initiative for worker welfare, he warned that it would immediately impact the manufacturing sector's cost management and cash flow position.
'The issue lies in the timing. Sales Tax is liable for payment upon the issuance of invoices, and October and November are critical cash flow months for manufacturers. Implementing SST with no delay alongside new EPF obligations will place serious financial strain on Sabah manufacturers. It's a good initiative — but the timing is wrong,' Chua stressed.
In view of these challenges, FSI urges the government to consider postponing the implementation of the SST scope expansion to 1st January 2026, allowing businesses time to adjust and manage their operations more sustainably.
Additionally, FSI appeals for Sales Tax exemption on the importation of essential raw materials such as plastic resins, to ease manufacturing costs and reduce extra compliance obligations for SMEs in Sabah.
'We sincerely hope the government will take into account Sabah's unique economic challenges and extend fair transitional measures that support local industries in remaining competitive while adjusting to new tax and labour policies,' Chua concluded.
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