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New Straits Times
21-07-2025
- Business
- New Straits Times
Easing foreign equity caps may boost FDI but raises sovereignty risks, say economists
KUALA LUMPUR: Easing foreign equity limits in strategic sectors may unlock fresh foreign direct investment (FDI) inflows into Malaysia but also pose structural and sovereignty-related risks, economists said. Malaysia has gradually liberalised its foreign equity rules including allowing up to 100 per cent ownership in the manufacturing sector since 2009. The country, however, still imposes significant limits in sectors like telecoms, finance, insurance, agriculture, property and healthcare. Investment, Trade and Industry Ministry last week reportedly said it was in talks with regulators and key industries about relaxing foreign ownership limits as part of efforts to reduce the 25 per cent US tariff on Malaysian goods. UCSI University Malaysia associate professor in finance and research fellow at Centre for Market Education Dr Liew Chee Yoong said the economic and structural impacts would likely be multifaceted. Liew said relaxing equity limits in Malaysia could potentially boost FDI inflows by 15-25 per cent in selected sectors, offering much-needed capital for infrastructure upgrades and technological progress. "This could facilitate valuable knowledge transfer, particularly in areas like 5G deployment, financial technology and cloud infrastructure," he told Business Times. Greater competition from foreign players could spur innovation and may lead to more competitive pricing for consumers, he added. "Strengthening linkages with global corporations might also bolster Malaysia's position within international supply chains," he said. Liew said the push for Malaysia to ease the caps is driven by a combination of interrelated factors. "Primarily, the US seeks enhanced market access for its corporations, particularly large financial institutions, telecommunications providers and technology firms, enabling them to gain controlling stakes and greater operational influence within Malaysia's developing economy. "This push also aims to secure competitive parity for US companies against regional rivals, such as Singaporean or Chinese firms, which may operate under different frameworks or have established significant regional headquarters." He added that these kinds of requests are frequently used as bargaining tools in broader trade talks, such as under the Indo-Pacific Economic Framework, to gain certain advantages. From a geopolitical standpoint, strengthening economic ties through investment is a strategic move to offset China's growing influence in the region, he said. Balancing growth and sovereignty Liew said one of the main advantages from the possible relaxation is the substantial inflow of foreign capital, which plays a crucial role in enhancing national infrastructure and supporting the growth of high-value industries. He added that gaining access to advanced technologies and international best practices could boost productivity and competitiveness, create jobs in higher-value sectors, and deepen economic ties with key partners such as the US. "However, these advantages are counterbalanced by substantial risks. Foremost is the erosion of control over strategic national assets and key industries, raising sovereignty concerns. "Domestic firms, particularly small and medium enterprises and Bumiputera-owned companies, face the risk of marginalisation or acquisition," he added. Liew said the disruption to long-standing socio-economic policies designed to ensure equitable wealth distribution could have significant political and social repercussions. "Furthermore, substantial profit outflows from foreign-controlled entities could negatively impact Malaysia's foreign exchange reserves and current account stability over time," he added. Putra Business School associate professor Dr Ahmed Razman Abdul Latiff said Malaysia imposes equity restrictions to promote greater local participation in industries and to ensure that wealth distribution benefits local investors and, ultimately, the broader population. "Lifting up such restrictions is still doable as long as the initial objectives are maintained or strengthened. "Maybe no longer through equity participation but perhaps with higher technology transfer such as technical know-how and co-sharing of intellectual properties rights," he added. Razman said this approach helps accelerate innovation within local industries and enables the development of competitive homegrown products, which in turn supports the long-term sustainability of local businesses. Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said opening up Malaysia's economic sectors to foreign investors must be done thoughtfully to safeguard local interests. "At the same time, we would also want our local companies to be able to compete effectively and be able to penetrate the overseas market," he said. Current landscape of foreign equity in Malaysia Afzanizam said as of June 2025, foreign ownership in Malaysian equities stood at 19 per cent, down from the historical peak of 25.1 per cent recorded in June 2013. This comes despite the market's appealing valuation, with the FTSE Bursa Malaysia KLCI trading at a price-to-earnings ratio of around 14 times, compared to the historical average of 17 times. "Among the criticisms is the liquidity of the stocks as the large companies, especially the government linked companies are being held by domestic institutions such as the government linked investment companies. "This has led to the amount of available stocks to invest is not economically viable for the foreign institution to invest from the liquidity stand point," Afzanizam told Business Times. Meanwhile, Liew said many service industries in Malaysia still face strict foreign ownership limits. For example, the telecommunications sector generally allows up to 49 per cent foreign ownership, while commercial banks are subject to a lower cap of 30 per cent. Investment and Islamic banking are typically limited to 49 per cent as well. "The insurance sector allows up to 70 per cent foreign ownership. Further limitations apply to agriculture and property, such as thresholds between 30 per cent and 50 per cent for agricultural land. "Crucially, the long-standing Bumiputera policy, mandating a 30 per cent equity share for Bumiputera interests, continues to influence ownership structures across various sectors," he shared. Key industries likely under review Afzanizam said Tengku Zafrul may have been referring to key sectors such as telecommunications and banking, given their significant role in Malaysia's economy. Sharing a similar view, Liew noted that the telecommunications sector is currently subject to a 49 per cent foreign ownership cap, which impacts major companies like Maxis Bhd and Axiata Group Bhd. He added that banking restrictions are even more pronounced, with commercial banking limited to 30 per cent foreign ownership and investment banking to 49 per cent. "Other sectors likely under discussion include professional services such as legal, accounting, and engineering firms, which often face limits between 30 per cent and 49 per cent; private healthcare, capped at 30 per cent; and potentially defence-related industries or critical transport infrastructure like ports and airports, deemed vital for national security and sovereignty," Liew said.
The Star
20-07-2025
- Business
- The Star
Banks on strong footing
PETALING JAYA: The Malaysian banking sector, a bellwether of the economy, faces indirect pressures from mounting global uncertainties induced by the harsh US tariff policies and rising geopolitical tensions. These headwinds could impact supply chains and lower demand for some industries, potentially resulting in elevated credit risks for banks. Despite these challenges, the sector, according to banking experts, is still on a strong footing, thanks to its strong capital position, stringent risk governance and the country's proactive move of forming trade partnerships and broadening its export markets. All these bodes well for the banking sector going forward. OCBC Bank (M) Bhd chief risk officer Priya Ranjan Sharma told StarBiz the banking sector continues to face headwinds this year, driven by persistent geopolitical tensions and the possibility of 25% reciprocal tariffs imposed by the United States. The tariffs would take effect on Aug 1. 'These developments, particularly the strained trade relations between China, the United States, and its regional partners, pose risks to supply chain stability and investor sentiment. Given the importance of United States as a trading partner to Malaysia, the tariffs may impact export volumes and revenues, placing pressure on the broader economy. 'Malaysia's strategic role in the China+1 supply chain diversification offers some resilience. 'The government is actively working to diversify export markets and stimulate domestic investment and consumption to cushion the impact. 'Structural reforms and increased public infrastructure spending are expected to support growth, though at a more moderate pace, with gross domestic product projections revised downwards,' he said. Despite these challenges, Ranjan Sharma said Malaysia's banking sector remains fundamentally sound. Banks are well-capitalised and maintain diversified portfolios which helps limit systemic risk and ensures continued financial stability in the face of external pressures, he noted. UCSI University Malaysia associate professor of finance and Centre for Market Education research fellow Liew Chee Yoong UCSI University Malaysia associate professor of finance and Centre for Market Education research fellow Liew Chee Yoong said the local banking sector is expected to face moderate indirect pressures this year from elevated US tariffs and geopolitical tensions, though systemic resilience should prevent severe disruption. He said while recent US reciprocal tariffs (targeting solar cells and semiconductors) have limited direct impact on core banking activities, secondary effects could materialise through supply chain friction and reduced business confidence. Liew said export-oriented industries, particularly electronics and commodities may experience weakened demand, potentially elevating credit risks for banks' corporate portfolios. 'Concurrently, escalating South China Sea tensions and US-China tech decoupling could disrupt regional trade flows and investment. 'Nevertheless, the banking sector's robust capital adequacy level with common equity tier-1 capital ratios of about 15%, stringent risk governance, and Malaysia's diversified trade partnerships should mitigate material deterioration. 'Banks remain well-positioned to absorb shocks, though vigilance toward trade finance non-performing loans and working capital stress in vulnerable sectors is warranted,' he said. In terms of loan growth for this year, Ranjan Sharma expects loan growth to remain resilient. Growth drivers such as ongoing infrastructure developments and strategic investment initiatives like the Johor-Singapore Special Economic Zone could help support demand, he said. On the consumer side, he said loan growth is projected to stay steady, underpinned by stable employment conditions and consistent income levels. Liew said loan growth is projected to moderate to between 4% and 5% this year, down from 5.5% last year, with business loans emerging as the primary engine of growth. He said net interest margins (NIMs) are anticipated to stabilise or edge marginally higher by 0.5 basis points (bps) this year after compression last year, contingent on deposit competition easing and monetary policy adjustments. 'However, a potential 25bps overnight policy rate (OPR) cut in the later part of the year could reintroduce NIM volatility, initially compressing yields on variable-rate loans before lower funding costs provide offsetting relief. 'Strategic repricing of loans and proactive liquidity management will be critical for banks to defend margins. 'Overall, NIM trends will remain range-bound, lacking significant upward momentum but avoiding steep deterioration,' Liew noted. A bank's NIM is a key profitability indicator that reflects the difference between the interest income a bank earns from loans and the interest it pays on deposits. A wider NIM indicates higher earnings for banks. Ranjan Sharma said NIM across the banking sector is expected to experience some compression following the recent cut in the OPR. He said additional pressure may arise from heightened competition for deposits as institutions seek to maintain funding stability. Furthermore, slower global trade, driven by escalating tariffs and geopolitical tensions, could weigh on sector performance, he noted. In particular, he said higher US reciprocal tariffs may dampen loan growth in export-oriented industries, adding to the cautious outlook. Bank Negara lowered the OPR by 25bps to 2.75% on July 9, describing the decision as a pre-emptive move to secure economic growth. On profitability, Liew said: 'The Malaysian banking sector's profitability in 2025 is projected to remain resilient, with return on equity stabilising at 10% to 11%, marginally below 2024 levels but reflective of disciplined adaptation to external headwinds. 'This stability will be anchored by three synergistic pillars: diversified revenue streams, operational efficiency, and prudent risk management. 'Non-interest income particularly from wealth management (amplified by the EPF Account 3 rollout), digital transaction fees, and capital market activities will counterbalance potential NIM compression.' RAM Rating Services Bhd senior vice-president of financial institution ratings Wong Yin Ching RAM Rating Services Bhd senior vice-president of financial institution ratings Wong Yin Ching said the OPR rate cut will transmit fairly quickly into the real economy, easing household and business finance expenditures. This may limit the rise of impaired loans within marginal segments in the near term, she said. 'That said, asset quality remains sound and is not a major concern, with the banking system's gross impaired loan ratio expected to come in at 1.50% as of the end of this year (end-May: 1.45%). 'Considering uncertainties on the horizon, the banking system will likely experience moderating loan growth this year relative to last year. The five months annualised loan growth for this year stood at 3.5%, compared with 5.5% last year. 'Banks are likely to see only a mild impact on their NIM from the OPR cut. The average NIM of eight selected local banks clocked in at 2.06% and 2.04% in last year and 1Q25, respectively,' Wong said. Based on RAM's past discussions with banks, she said most indicated that a 25bps cut typically results in a full-year NIM contraction of about 2bps to 3bps. Wong said the earlier reduction in the Statutory Reserve Requirement from 2% to 1% in May is expected to offer a slight cushion to margins by releasing some funds for redeployment into higher-yielding assets.
The Star
14-07-2025
- Business
- The Star
Central banks' gold-buying spree
PETALING JAYA: Geopolitical risks coupled with rising economic uncertainty and volatile US trade policy is pushing central banks to buy gold, traditionally seen as a buffer for unsettled times, with experts noting that this trend reflects a gradual shift away from the greenback while also enabling them to diversify their reserves portfolios. UCSI University Malaysia associate professor of finance and Centre for Market Education research fellow Liew Chee Yoong told StarBiz that there were a number of inter-related factors driving this demand. 'Firstly, the global geopolitical landscape has become increasingly unstable. Tensions between major powers, particularly between the United States and China, and between the West and Russia have prompted many nations to seek greater financial autonomy. 'Gold, unlike US Treasury securities or other US dollar-denominated assets, is a neutral asset that is not subject to the political or legal control of any one nation. 'This makes it a particularly attractive store of value for central banks aiming to shield themselves from the potential fallout of sanctions, trade disputes or currency wars,' he noted. Liew said China, Russia, India and members of the BRICS alliance have been systematically reducing their reliance on the US dollar while increasing their holdings in assets such as gold, which offers long-term stability and freedom from US jurisdiction. Ballooning US national debt and recurring debt ceiling crises remain areas of concern too. 'Gold also continues to serve as a hedge against inflation. 'Although global inflation has eased somewhat since its Covid-19 pandemic-era peaks, core inflation remains sticky in many economies,' he said, adding that gold constituted a relatively small portion of Malaysia's foreign reserves at 2.2% as of 2023, compared to the global average of 8%. Juwai IQI global chief economist Shan Saeed Shan Saeed, global chief economist at Juwai IQI, said Bank Negara held 38 tonnes as of the first quarter of 2025, according to the World Gold Council. 'Global central banks have been on a multi‑year buying spree – purchasing over a thousand tonnes annually since 2022. In May 2025 alone they added another 20 tonnes, and a record 95% of central bank reserve managers expect to increase gold reserves over the next year.' According to the World Gold Council, central banks added a net 20 tonnes to global gold reserves in May 2025, an uptick from the previous month, though the overall pace has moderated slightly. The National Bank of Kazakhstan led the buying (seven tonnes), followed by Turkiye and Poland each with six tonnes net purchases, meanwhile the Monetary Authority of Singapore reported sales of five tonnes over the same period. Shan said several economic and financial drivers were at play. 'In parallel, fears of de‑dollarisation and a desire for a more stable, non‑sovereign store of value are leading central banks to diversify. 'The World Gold Council survey found that diversification in crises, inflation hedging, and geopolitical hedging are top reasons for gold allocation,' he added. He pointed to a UBS survey that revealed central bankers were worried about the financial risks tied to the US debt restructuring and the politicisation of the US Federal Reserve (Fed), with two‑thirds of central bankers worrying about policy neutrality, and 39% planning more domestic gold storage. 'All this is happening against a backdrop of resilient gold prices as the precious metal has climbed around 28% this year, with forecasts ranging from US$3,300 to US$4,000 per ounce by year-end. 'So, central banks are almost certain to continue scooping up gold to hedge against inflation, geopolitical and financial risks, and reduce reliance on the US dollar. 'The dollar index has lost 10.5% year-to-date and will experience tail-end risk. This aligns with structural shifts in the global reserve system we are witnessing now,' Shan noted. Sunway University professor of economics Yeah Kim Leng Sunway University professor of economics Yeah Kim Leng said the gold price surge has been evident since mid-2019 due to a combination of factors that include Fed rate cuts, trade war escalation, recession fears, geopolitical risks and record central bank buying. 'The rise in gold price was particularly strong in 2024 with year-on-year monthly increases averaging 23%. 'More spectacularly, the monthly increases accelerated by 39% in the first six months of 2025 due to similar factors, but exacerbated by Trump's global tariff war and dollar weakness amid rising concerns over high US debts and fiscal woes.' Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said US economic policies would have negative implications on the country's economy in the long run, with the tariffs raising the cost of doing business that would translate into a higher cost of living. He said the One Big Beautiful Bill Act would result in the widening of the income gap as the tax cut measures benefits the high-income individual at the expense of lower social spending such as Medicaid as well as reduction in the clean energy subsidies. 'All this can have a significant impact on the US growth trajectory. Moody's Ratings has already downgraded their sovereign rating on the US government from Aaa to Aa1 on May 16. 'They have projected that fiscal deficits will widen from 6.4% of gross domestic product (GDP) in 2024 to nearly 9% of GDP in 2035. 'By extension, the government debt-to-GDP will rise from 98% of GDP in 2024 to 134% of GDP in 2035. 'On that note, the US dollar as a safe haven status is being revisited by the trading community which then makes a compelling case for gold as the substitute for the safe haven assets,' Mohd Afzanizam noted. 'On that note, shifting into gold and perhaps other precious metals such as silver, platinum and palladium could be the way to go. 'Essentially, we could see that fiat money would evolve into where the money will be backed by the precious metal and valuable commodities,' Mohd Afzanizam said, adding that he expects gold to hover at US$3,500 per ounce for this year. Meanwhile, James Steel, the chief precious metals analyst at HSBC Global Investment Research, said central banks have racked up in excess of 1,000 tonnes of gold each year for the past three years, and the desire to diversify from the US dollar and cope with geopolitical risks looks likely to continue to fuel sector demand at a high rate going forward. 'Many private and individual investors have rediscovered gold, but the most recent buying is heavily institutional, and for large bars or on the over-the-counter and futures markets. After three years of liquidation, the exchange traded fund appear to be on a path of rapid accumulation,' he said.
The Star
19-05-2025
- Business
- The Star
Local banks remain steady amid US tariffs and geopolitical risks
PETALING JAYA: The Malaysian banking system is not out of the woods yet, as it continues to face headwinds despite the injection of around RM19bil from the recent 'aggressive' cut in the statutory reserve requirement (SRR) ratio. On May 8, Bank Negara announced that the SRR would be reduced from 2% to 1%, effective May 16. This would release about RM19bil into the banking system amid heightened volatility and uncertainty in global financial markets. However, the central bank left the overnight policy rate (OPR) unchanged at 3%. Economists and analysts noted that while the banking system remains well-capitalised, it still faces risks from US tariffs and geopolitical tensions, despite temporary relief from a 90-day agreement between the United States and China to reduce steep tariffs Most agree that the outcome after the 90 days will be crucial in determining the broader economic impact, which, in turn, will have some effect on the banking sector. The anticipated slowdown in economic growth this year – driven by tariffs and escalating geopolitical risks – could potentially trigger a trade war, dampening global growth and leading to lower interest rates. Lower interest rates are expected to compress banks' net interest margins (NIMs), a key measure of profitability. Currently, the benchmark lending rate, or OPR, stands at 3%, with some economists forecasting at least one rate cut this year. Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid noted that a lower interest rate environment could make a comeback amid heightened global uncertainty from tariff shocks. 'If that happens, it would have an impact on banks' NIM, especially those banks that have a bigger share in variable-rate financing (loan) contracts.' He said weaker gross domestic product (GDP) growth prospects means banks may need to have higher financing loan loss provisions that could affect their earnings in the current year. Tighter credit underwriting standards would also impact loan growth, which could affect NIMs and profitability. 'Intense competition is here to stay. It's a challenging outlook for banks on the whole this year,' he noted. Mohd Afzanizam expects loan growth to reach around 5% for the year. That said, he believes banks' financial positions are still robust and should be able to withstand tariff-related shocks. 'I think the foreign investors are fully aware of this and they would be more than happy to have greater exposure to banking stocks as they are proxy to Malaysia's economic health,' Mohd Afzanizam said. UCSI University Malaysia associate professor of finance and Centre for Market Educationresearch fellow Liew Chee Yoong UCSI University Malaysia associate professor of finance and Centre for Market Education research fellow Liew Chee Yoong also expects NIM to face continued compression pressures in 2025. He noted that the confluence of rising deposit competition, stagnant interest rates, and limited room for further loan repricing may weigh on NIM levels across the banking sector. Banks experienced mild margin erosion in 2024, and this trend is expected to persist unless the lending mix shifts decisively toward higher-yield segments such as unsecured personal financing or small and medium enterprise loans, he said. As banks continue to digitalise and adopt new financial technologies, he said their ability to grow non-interest income may offer partial insulation against NIM pressures. 'While margin performance may not dramatically deteriorate, banks will have to work harder to preserve profitability, particularly in an environment where monetary conditions are largely neutral and market yields are plateauing. 'Hence, the NIM outlook for 2025 leans toward a marginal decline or, at best, flat performance compared to 2024,' he said. 'Should inflation remain sticky or unemployment rise, banks may experience a deterioration in asset quality, particularly in unsecured consumer loans. 'Hence, while resilient, the sector must remain vigilant and agile in managing credit risks and regulatory burdens,' he said. RAM Rating Services Bhd senior vice president of financial institution ratings Wong Yin Ching Meanwhile, RAM Rating Services Bhd senior vice-president of financial institution ratings Wong Yin Ching said banks' profits may face pressure in 2025 in line with more moderate loan growth and increased provisions. NIMs are envisaged to stay largely unchanged, with the lower SRR having a mild positive impact. 'NIMs will be predominantly influenced by the direction of the OPR. At this juncture, RAM expects the OPR to remain stable for the rest of the year unless economic growth slows significantly, which is not our base case,' she said. RAM expects slower GDP growth of 3.5% to 4.5% in 2025, down from 5.1% last year. Despite the SRR reduction, she said the rating agency is maintaining its loan growth projection of 4% to 4.5% for the banking sector, citing ongoing trade negotiations as a key uncertainty. 'Consumer loans, particularly home loans, will drive domestic loan expansion, given weaker sentiment and increased caution by businesses. 'Calls for potential deferment of the targeted petrol subsidy rationalisation and revision of the sales and service tax rates and scope, may further support consumer spending,' Wong said.
The Star
30-04-2025
- Business
- The Star
Revenue drawback with SST delay
PETALING JAYA: The postponement of the expanded scope of the sales and service tax (SST) is expected to help safeguard economic stability at a time of heightened global uncertainty, say economists. Nevertheless, they cautioned that the move is not without costs, as the delay in implementation could result in a short-term decline in government revenue. UCSI University Malaysia finance associate professor and CME research fellow Dr Liew Chee Yoong pointed out the delay in rolling out a wider scope of SST will 'almost certainly' cause the country to miss at least 'a portion' of the additional RM5bil revenue target initially set for 2025. Liew added that given the deferment will likely push the implementation to September or later, the government will lose roughly one-third of its potential taxable period. 'Assuming a steady rate of revenue collection, this would amount to a loss of about RM1.6bil to RM1.8bil,' he told StarBiz. He said when positioned against the government's total projected revenue of RM339.71bil for 2025, the RM5bil expected from the expansion of the SST scope would have contributed about 1.47% of the total. Consequently, the estimated shortfall of RM1.6bil to RM1.8bil corresponds to about 0.47% to 0.53% of total projected revenue. 'Though numerically small, this shortfall is significant in a context where Malaysia is aiming to reduce its fiscal deficit to 3.8% of gross domestic product (GDP) this year. Even minor setbacks in revenue can have disproportionate impacts on fiscal consolidation targets, making the delay fiscally meaningful,' Liew said. The expansion of the SST scope was announced during the tabling of Budget 2025 last year by Prime Minister Datuk Seri Anwar Ibrahim. Back then, Anwar said the sales tax will be imposed on non-essential items, including imported premium items like salmon and avocado. Further, the service tax will be expanded to include business-to-business commercial transactions, particularly fee-based services, that were previously exempted. On Monday, the Finance Ministry announced that the enforcement of the SST scope expansion, which was slated to take place on May 1, will be implemented at a later date. The gazettement of the new tax changes, which was originally supposed to take place in the first quarter of this year, is now scheduled for June 1. It was noted that nationwide engagements with industries to finalise the scope of the expansion and applicable tax rates have been completed. Last November, the government said it expects to raise an extra RM5bil in revenue by enlarging the scope of the SST. Revenue was projected to hit RM51.7bil from the initiative, up from the forecast of RM46.7bil for 2025. While Liew said the decision to delay the expansion of SST scope is 'justified and strategically sound', he also noted the move is not without costs, though the pros outweigh the cons at least in the short term. 'The delay protects domestic consumption, which is pivotal to economic recovery. It supports overall growth momentum and shields households from the rising cost of living. 'Furthermore, it aligns Malaysia's policy approach with other global economies that are favouring fiscal caution over aggressive revenue measures amidst a fragile recovery,' he said. However, beyond the expected revenue loss, Liew also cautioned that there may be a reputational risk regarding the country's fiscal discipline, as delays may send mixed signals to investors and international credit rating agencies. 'Despite these drawbacks, safeguarding economic stability at a time of heightened global uncertainty is a more critical priority. Thus, the decision reflects a pragmatic balancing of risks where protecting the economy outweighs immediate revenue considerations,' he said. Bank Muamalat Malaysia Bhd head of economics, market analysis and social finance Dr Mohd Afzanizam Abdul Rashid said the postponement of the SST scope expansion should be seen in the context of broader global developments. Specifically, he stated the tariff shocks imposed by US President Donald Trump on April 2 present a challenging prospect, especially for the local manufacturing sector, where more than two-thirds operate in export-oriented industries. 'Already, we have seen major organisations such as the International Monetary Fund and World Bank revise down their global growth forecast including Malaysia's GDP growth this year,' Mohd Afzanizam said. Hence, he is of the view that the deferment of the SST scope expansion reflects the government's pragmatic approach in enacting policy measures by constantly looking at the current economic trajectory in order to arrive at a realistic outcome. Since the expansion of SST scope has been deferred, Mohd Afzanizam said the RON95 subsidy rationalisation plan is expected to go ahead as planned. 'If that is the case, then perhaps the government's fiscal deficit-to-GDP target of 3.8% for 2025 would not deviate much,' he said. Meanwhile, Universiti Tunku Abdul Rahman economics professor Wong Chin Yoong said the brief delay in the enforcement of the SST scope expansion is unlikely to cause the government to miss its target of obtaining the additional RM5bil in revenue. Wong opined the reason for the deferment is probably because the authorities and relevant ministries needed more time to fine tune the details of the SST scope expansion, rather than the uncertainties arising from the US' tariffs. 'If the delay was due to the latter, it would likely extend beyond a month, possibly until after the ongoing 90-day pause, allowing businesses to better assess the impact of the tariffs,' he said. Wong said what is more important at this juncture is the implementation of e-invoicing to ensure the proper and effective rollout of the expanded SST scope. The government has announced a six-month delay for the implementation of Phase 3 of e-invoicing earlier this year, pushing it to Jan 1, 2026, from the initially scheduled date of July 1, 2025. 'The SST scope expansion is not the only aspect that matters when it comes to revenue collection, but it is the e-invoicing system that matters the most,' said Wong. He added that the enlarged scope includes fee-based commercial service provisions, which more often than not are not properly recorded as income revenue by the providers. This will end up becoming part of the informal economy. 'With e-invoicing, every such transaction will be invoiced and submitted to the Inland Revenue Board, enabling the government to better capture the corresponding tax revenues,' he said. To this end, Liew said the country has several viable fiscal strategies to strengthen its financial position, in response to the revenue shortfall created by the delay in the SST scope expansion. One major approach is in enhancing tax compliance. 'The informal and shadow economy accounts for roughly 18% to 20% of Malaysia's GDP. Strengthened enforcement and digitisation initiatives like e-invoicing, could yield between RM3bil and RM5bil annually,' he said. Other recommendations include the introduction of new taxes, public asset monetisation for one-off revenues and the potential reintroduction of a more targeted and progressive form of the Goods and Services Tax (GST-lite). 'Strategic divestments of non-essential government land or government-linked companies could result in one-off revenues of between RM5bil and RM10bil. 'Broader structural tax reforms like GST-lite could be deferred until the nation's economic recovery is firmly anchored, likely post-2026, to minimise shocks to household consumption and business investment,' Liew said.
