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New Straits Times
08-07-2025
- Business
- New Straits Times
Impact of US tariffs on Malaysia: What steps should be taken?
KUALA LUMPUR: United States (US) President Donald Trump has announced that a 25 per cent import tariff will be imposed on products from Malaysia starting Aug 1. The move, officially communicated via a letter to Prime Minister Datuk Seri Anwar Ibrahim, is said to be part of a broader strategy to rebalance US trade. While the tariff may be legally justified under international trade rules, it is a blow to Malaysia's economy, especially key export sectors such as electrical and electronics (E&E), manufacturing, palm oil, textiles, and rubber products including gloves. Malaysian Tax Accountants Association deputy president Dr Mohd Fairuz A Razak said the 25 per cent US tariff is a clear sign that global trade is becoming increasingly unstable. He said Malaysia cannot afford to stick with a slow-moving system that relies too heavily on outdated policies. "Such tariffs are a test of Malaysia's economic structural resilience. The country cannot simply rely on diplomacy or rhetoric — it must move quickly with comprehensive adjustments in fiscal, tax, and investment policies," he said. Here are some of the major impacts Malaysia faces from the 25 per cent US tariff: Decline in exports Malaysian products will become more expensive in the US market. This could drive American buyers to seek alternatives from countries like Vietnam, which are not subject to tariffs. Lower corporate earnings Manufacturers will face margin pressures as profits decline, production slows, and new investments are postponed. Reduced tax revenue The government is expected to collect less tax revenue due to lower corporate income tax arising from reduced profits. Sales and Service Tax (SST) collections may also fall as domestic production decreases. Meanwhile, Real Property Gains Tax may rise if factories or industrial assets are sold due to closures or downsizing. Threat to foreign investment Foreign investors, especially from the US, may consider relocating to neighbouring countries with more business-friendly and cost-effective policies. Malaysia now falls into the category of "at-risk countries" in terms of labour cost, tax policies, and international trade relationships. This calls for urgent policy reforms to keep Malaysia relevant and competitive in the region. In response, Mohd Fairuz said the government must act swiftly and comprehensively. Among the strategic measures that should be considered are: Immediate bilateral negotiations The Investment, Trade and Industry Ministry and the Foreign Ministry should initiate specific talks with the US to secure exemptions for certain sectors or to gradually reduce tariff rates. The Malaysia-US strategic relationship should not be defined solely by trade imbalances. Malaysia should offer strategic investment cooperation with the US. Targeted SST restructuring The government should reconsider SST implementation on export-related inputs. Tax exemptions on these inputs could help ease cost pressures on manufacturers. Another approach would be to exempt SST on export inputs to prevent double taxation on exporting companies. Special industrial electricity rates Introducing subsidised electricity rates for strategic industries like E&E and automotive can help offset the external tariff burden and maintain competitiveness. The government should also encourage automation and energy efficiency investments. Tax-free and SST-free economic zones Create special export production zones exempt from SST and granted fiscal flexibility, such as in Batu Kawan, Iskandar Malaysia, and Kulim Hi-Tech Park. This could also attract reinvestments from US companies. Additionally, tax incentives could be offered to companies that maintain export operations in Malaysia. Enhanced investment and digitalisation incentives The government can introduce digital tax rebates, automation investment allowances, and Green Investment Tax Incentives to attract foreign investors to stay or expand in Malaysia. Small and medium enterprises should be encouraged to adopt technology to reduce costs and stay competitive.
Sinar Daily
18-06-2025
- Business
- Sinar Daily
SST is good but needs improvement, experts say
SHAH ALAM - Economic experts believe that the Sales and Services Tax (SST) is still considered the best system for implementing targeted taxation in the country, given the suitability of the local economic landscape. Malaysian Tax Accountants Association (Mata) deputy president Dr Mohd Fairuz A Razak however said that the government still needed to make several improvements to make it more effective compared to the Goods and Services Tax (GST) that was previously introduced in the country. He said that the improvements should include exempting taxes specifically on all food items, vegetables and fruits comprehensively so that these related items truly meet the targeted needs. 'SST is indeed more people-friendly at this time because its tax rate is not imposed uniformly compared to GST. 'However, essential goods, including imported food products, should not be taxed since they are important elements in the lives of the people, even though some of them may be considered luxury items enjoyed by the affluent. 'My question is, how will the government ensure the separation of luxury items such as vegetables, fruits and livestock products can be enforced comprehensively without burdening distributors and retailers? 'Most importantly, are all food items, vegetables and imported fruits only enjoyed by high-income groups? What about onions, salt, mangoes and bananas that are also daily foods for the B40 group?' he said when contacted by Sinar on Tuesday. Certain fruits considered 'luxury item' like avocados, are now also enjoyed by people from various groups, including those with low incomes. Previously, Prime Minister Datuk Seri Anwar Ibrahim emphasised that the government was not ready to reintroduce GST at the time because the economy of the people has not yet fully recovered. Anwar said that the government chose to continue with the more targeted SST system because it only imposed taxes on certain goods, particularly luxury imported items. Therefore, Fairuz said that all essential goods, including those imported from abroad, should also be exempted from SST tax. 'The country indeed imports a lot of essential food from other countries. So, one way is for the government to exempt food to ensure it is more targeted. 'If not, it will become a major issue and backfire on the government again because essential food is a necessity for living, not merely something fancy enjoyed by certain groups,' he said. Fairuz emphasised that the implementation of targeted SST could only be achieved if the government conducts a thorough review of the list of goods that would be taxed. He said certain fruits considered 'luxury item' like avocados, were now also enjoyed by people from various groups, including those with low incomes (B40). He also advised the government not to rush into expanding SST because many among the people and traders were still confused about the actual number of items subject to tax. Meanwhile, Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said that the implementation of frequently changing tax policies in the near term would only burden the people and traders. However, he believed that SST could be considered a more suitable tax system to implement in the country's economic landscape if it remained consistent. 'So, the issue is more about the method of implementation and enforcement of the policy more consistently to ensure that the SST system is more effective in its implementation,' he said. He explained that the current implementation of SST showed positive results in line with the government's need to increase national revenue in a targeted manner. 'This means that the existing system must meet the targets or objectives of the government to improve their financial position by reducing the fiscal deficit and making the Federal Government's debt more stable,' he said.
