06-07-2025
FSI: Compounded tax and regulatory burdens impacting Sabah industries
Frederick Chua
KOTA KINABALU (July 6): The Federation of Sabah Industries (FSI), as the principal body representing the interests of Sabah's industrial and manufacturing sector, on Sunday voiced serious concerns over the compounded operational and financial challenges faced by industries following the implementation of several significant regulatory changes in 2025.
FSI treasurer Sylvester Chua stated that the recent expansion of the Sales and Service Tax (SST) scope effective 1 July 2025, combined with the increase in minimum wage to RM1,700, the mandatory e-invoicing rollout for companies with turnover between RM5 million and RM50 million, and the impending 2% EPF contribution for foreign workers starting October 2025, have collectively imposed a heavy administrative and financial burden on businesses in Sabah.
'Industries are struggling to manage overlapping compliance demands within a compressed implementation timeline,' said Chua.
'The absence of clear, transitional guidelines particularly concerning business-to-business (B2B) exemptions and the application procedures for raw materials and intermediate goods exemptions has led to confusion, operational disruption, and rising compliance costs,' he said.
He further noted that in the Sabah context, most raw materials are acquired for the manufacturing of end products. Therefore, full exemptions for raw materials, components, intermediate goods, and manufacturing equipment from Sales Tax regardless of the tax status of the finished product are critical.
Not only would this relieve manufacturers of unnecessary tax-on-tax burdens, but it would also reduce compliance documentation and audit preparation costs, which have now become an added strain on industries already facing higher logistics and infrastructure costs.
The combined financial impact of wage increases, SST compliance costs, e-invoicing obligations, and the soon-to-be implemented EPF contribution for foreign workers is severely pressuring the viability of manufacturers and SMEs in Sabah, Chua warned.
Without immediate policy intervention, this will inevitably result in higher operational costs, supply chain disruptions, and increased prices for consumers.
In light of these issues, FSI is committed to raising these concerns directly with the Federal Government on behalf of Sabah's business community.
The federation urgently appeals to the Prime Minister and the Federal Government to introduce a comprehensive and industry-friendly B2B exemption framework, alongside clear, practical implementation guidelines to support businesses through this challenging period.
FSI also wishes to commend the Royal Malaysian Customs Department, Sabah for its proactive engagement and support during the early stages of implementation. However, as Chua pointed out, key areas such as B2B exemptions, raw material and products classifications, and exemption application procedures still require urgent clarification and improved administrative processes to avoid further uncertainty and disruptions.
The FSI reaffirms its commitment to working closely with authorities and stakeholders to ensure that industrial policies and taxation frameworks are equitable, practical, and responsive to the unique economic conditions and operational realities faced by industries in Sabah.
