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The Sun
08-07-2025
- Business
- The Sun
Act fast to adapt to 25% US tariff, Malaysian SMEs told
PETALING JAYA: Malaysia's small and medium enterprises must act fast to adapt to the new 25% US tariff on Malaysian exports or risk facing severe disruptions to their operations, cash flow and long-term competitiveness, economists warn. Universiti Teknologi Mara (UiTM) Department of Economics and Financial Studies senior lecturer Dr Mohamad Idham Md Razak said the tariff will significantly raise the cost of doing business for Malaysian exporters targeting the United States – which is one of Malaysia's largest trading partners. 'Export volumes may decline, resulting in lower revenue and possible cash flow problems, particularly for SMEs,' he said. 'Businesses need to rethink their strategies quickly. Those who are too reliant on the US will be the most vulnerable.' He urged the government to provide immediate relief in the form of tax deferrals, subsidies or low-interest loans, while encouraging market diversification and improving export support for small firms. 'In the short term, they need help absorbing the cost increase. In the long run, we need to build resilience through diversification and higher-value products.' Taylor's University research cluster lead for innovative management practices Prof Dr Poon Wai Ching echoed this view, stressing that SMEs should use Malaysia's existing trade frameworks to explore alternative markets in Asia, the Middle East, and Africa. 'SMEs must map their supply chains, improve cost efficiency, and open dialogue with US clients to better understand product demand,' she said. 'But ultimately, Malaysia's small businesses must upgrade their product value, branding and innovation to move beyond low-cost export models.' Poon also urged policymakers to increase funding for export promotion agencies such as Malaysia External Trade Development Corporation (Matrade) and ensure SMEs are supported in expanding internationally. Universiti Putra Malaysia Putra Business School Assoc Prof Dr Ida Md Yasin said while larger firms are generally more equipped to weather global shifts, SMEs must be agile and innovative to survive. 'I'm not so worried about the big companies – they are usually good with the latest technology. But SMEs need to back up, especially when entering new markets,' she said. 'They must come up with innovative products and productive processes to compete globally.' Drawing an analogy, Ida said: 'A big company is like a large ship – it takes time to manoeuvre. 'But an SME can pivot faster, if its leadership is ready to act. That speed is what will determine survival in this new trade environment.' The warning comes after US President Donald Trump announced that Malaysian exports to the US will face a 25% tariff – which had been under a 90-day pause – starting Aug 1, up from 24% previously. In a letter addressed to Prime Minister Datuk Seri Anwar Ibrahim and posted on Trump's Truth Social platform, the US president described the tariff as 'far less than what is actually needed' to correct the US trade deficit with Malaysia. 'Malaysia's current trade policies have made our trading relationship largely one-sided and non-reciprocal,' Trump said, warning that any retaliation such as raising tariffs on US imports would trigger an additional 25% tariff. He suggested that Malaysian companies could avoid the tariffs by relocating or setting up manufacturing operations in the US, offering to fast-track necessary approvals.
New Straits Times
04-07-2025
- Business
- New Straits Times
Malaysia may secure partial US tariff exemptions, say economists
KUALA LUMPUR: Malaysia may secure partial carve-outs from potential United States tariffs due to its critical role in global supply chains, particularly in electronics and key commodities such as palm oil, an economist said. Universiti Teknologi Mara's Malaysian Academy of SME and Entrepreneurship Development coordinator Dr Mohamad Idham Md Razak said Malaysia's position as a supply-chain hub for multinational producers could support its case for exemptions in specific sectors. "Partial or conditional carve-outs, such as lower negotiated tariffs or phased implementation, are more realistic, especially if Malaysia can leverage its bilateral relationships or regional platforms like Asean," he told the New Straits Times. He said countries with significant trade dependencies, such as South Korea, which relies heavily on semiconductor exports to the US, have successfully negotiated exemptions in the past, although these were often limited to high-priority sectors. However, Idham said a full exemption was unlikely, as tariffs are typically imposed to serve domestic policy objectives rather than being negotiated broadly on a country-to-country basis. This comes as US president Donald Trump announced that his administration will begin issuing letters to foreign countries starting next Friday, outlining new tariff rates on goods imported into the United States. In Malaysia's case, several rounds of discussions have already been held with Washington, including a delegation led by Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz. The country faces a 24 per cent tariff on certain exports to the US unless both sides reach an agreement before the 90-day pause ends on July 8. Idham said that electronics and electrical goods, which make up nearly 40 per cent of Malaysia's exports, would be the most vulnerable if the new tariffs are imposed, followed by downstream products such as petroleum and palm oil. He said the imposition of tariffs could disrupt existing supply chains, reduce export revenue, and dampen foreign direct investment (FDI). "A 10 per cent tariff shock on critical sectors could shave off between 0.3 and 0.5 percentage points from gross domestic product (GDP) growth, given that trade accounts for around 70 per cent of the Malaysian economy. "Secondary impacts could also affect employment, particularly in manufacturing-heavy states like Penang and Johor, potentially widening regional economic disparities," he said. Universiti Putra Malaysia Business School economist Dr Ida Md Yasin said that if Malaysia's negotiations with the US do not lead to favourable outcomes, the country could face serious trade challenges amid a shifting global landscape. She said the world is moving towards "friend-shoring", where major powers prioritise trade with trusted allies, and regionalisation, rather than relying on global free trade frameworks. "This shift could pose challenges for the Asean region. "Countries like Vietnam and Malaysia may gain some short-term advantage due to their integration into Western tech supply chains, but others that are less diversified could be left behind," she said. Ida said that if countries like Malaysia are unable to secure tariff carve-outs or exemptions through negotiation, they may face economic pressure and a loss of competitiveness. "The region must urgently strengthen the Asean Economic Community (AEC) and negotiate as a bloc. "Otherwise, each country risks being sidelined one by one in future trade talks," she said. She said that Malaysia must diversify its export markets and explore trade opportunities with non-traditional partners, including the Middle East and Africa. "We also need to upskill our workforce so we can move from simply assembling chips to designing them."
New Straits Times
23-06-2025
- Business
- New Straits Times
Hormuz crisis could shake Malaysia's supply chains, inflation stability, experts warn
KUALA LUMPUR: The potential closure of the Strait of Hormuz could disrupt Malaysia's supply chains, fuel inflation and strain small businesses, economists have warned. Universiti Teknologi Mara Malaysian Academy of SME and Entrepreneurship Development coordinator Dr Mohamad Idham Md Razak said a shutdown of the vital shipping lane could cause far-reaching economic shockwaves. "Some 21 million barrels of oil pass through the Strait of Hormuz daily. If that flow is disrupted, vessels will be forced to divert around the Cape of Good Hope, adding 10 to 15 days in shipping time. "These delays will result in higher freight costs and fuel prices, which would directly impact Malaysia's just-in-time production processes, especially in manufacturing," he said. He added that rising import costs would squeeze margins for SMEs and raise inflationary pressures on consumers. While Malaysia may benefit from higher oil prices as a net energy exporter, Idham cautioned that the gains could be offset by rising import costs and the spill-over effects of global trade and supply chain dysfunction. "Malaysia imports roughly 30 per cent of its refined fuel, so petrol and diesel prices may rise by as much as 20 sen per litre. This could push overall core inflation up by one to two percentage points, disproportionately affecting lower-income households," he said. He said downstream sectors, particularly agriculture, logistics, and manufacturing, would face cascading cost increases, driven by higher fuel and transport expenses, he added. Port Klang, a key regional hub, could also see a decline in throughput as global shipping routes are disrupted and regional trade logistics become more volatile. "Malaysia's export base is diverse, but the manufacturing sector makes up about 31 per cent of GDP. "With limited fiscal space, such as the government debt standing at around 64 per cent of GDP, there is little room to provide broad subsidies or wage relief," he said. He warned that SMEs, which generally have less pricing power and thinner margins, are likely to bear the brunt of volatile input costs. "SMEs don't have the capacity to absorb price shocks the way large corporations do. Many are already operating in a tight environment. "A prolonged crisis could see closures or workforce reductions, further straining the economy." Idham added that the economic impact would extend beyond Malaysia, affecting many Asian economies heavily dependent on Middle Eastern energy imports and export-driven manufacturing. "Countries like China, Japan, and South Korea import large volumes of crude oil and liquefied natural gas from the Middle East. "A disruption would drive up their energy costs, widen trade deficits, and trigger inflationary pressure across key sectors," he said. Rising shipping costs and longer delivery times would also weaken Asia's export competitiveness, leading to higher prices for finished goods such as electronics, vehicles and machinery. Meanwhile, Universiti Utara Malaysia School of International Studies senior lecturer Asrar Omar said Asean countries would face both immediate and long-term consequences if the strait was closed. "The strait accounts for about 20 per cent of global oil shipments, much of which is destined for Asian markets including Asean. "A disruption would cause an immediate spike in oil prices, particularly in liquefied petroleum gas (LPG)," he said. Vietnam and Malaysia, he added, would be among the hardest hit due to their reliance on energy for manufacturing and semiconductor industries. "Higher fuel costs will drive up production costs and undermine competitiveness. "Asean nations would have to seek alternative and more expensive energy sources, compounding inflationary pressure," he said. He added that the tourism industry in Thailand could also be affected due to higher transport costs, while delays caused by shipping reroutes may lead to congestion in the Straits of Malacca. "Asean economies rely heavily on exports, which in turn depend on smooth imports. Rising freight rates and delays will increase trade costs, affecting everything from industrial production to consumer goods," Asrar said. He said that prolonged price shocks could lead to economic slowdowns across the region. "In import-dependent Asean countries, sustained inflation will reduce consumer spending and deter business investment. "If the crisis persists, the long-term effects on consumer prices could be severe." With many Asean nations still lagging in energy transition efforts, Asrar said diversifying supply chains would be difficult. "Asean may have to invest more aggressively in renewable energy and explore alternative trade routes. "There also needs to be a shift from a consumption-based to a production-based mindset to ensure long-term energy and economic security," he said.
The Sun
12-06-2025
- Business
- The Sun
Malaysia Urged to Release Clear SST Taxable Items List
PETALING JAYA: The government is being urged to release a clear, centralised list of taxable and exempted items under the expanded Sales and Service Tax (SST) to prevent confusion ahead of its implementation on July 1. Economists warn that without authoritative guidance, businesses could face compliance issues and pricing disputes. They said a government-endorsed reference list is seen as critical to ensure clarity for companies, consumers and enforcement agencies. A Finance Ministry spokesperson said the expanded SST will include a 5% sales tax on both locally manufactured and imported goods. However, locally grown fruits will be exempt, while imported fruits will be taxed. 'Selected imported food items such as rice, wheat, sugar, salt and meat remain exempt as they are considered basic essentials,' the ministry said, adding that both local and imported palm oil used for cooking will also continue to be exempted. Still, confusion persists over what exactly is taxable. For example, cooking oil was initially believed to be taxed, but authorities later clarified that palm-based cooking oil, regardless of origin, remains exempt. Universiti Teknologi Mara Academy of SME and Entrepreneurship Development coordinator Dr Mohamad Idham Md Razak said the lack of clarity could lead to unintended consequences. He noted that while the move is a necessary revenue measure, broad tax hikes during economic uncertainty carry risks, and targeting luxury goods would be a more balanced approach. 'While lower-income groups may be shielded by continued exemptions on basic necessities, middle-income households could feel the pinch depending on their spending habits. 'Short-term inflation is a likely outcome if businesses choose to pass the additional tax burden on to consumers, particularly for goods and services that fall into the semi-essential category. But spending may not drop sharply if essentials remain unaffected.' Mohamad Idham also stressed that the expanded SST would only be effective if luxury goods and services are clearly defined, and if enforcement is strong enough to prevent loopholes, such as luxury vehicles or high-end entertainment options escaping taxation. He added that the government must closely monitor price hikes on semi-essential items, including mid-range electronics, and regularly review the exemption list to ensure it reflects current economic realities, particularly for middle-income households. 'In sectors such as private healthcare and education, where demand is relatively inelastic, service providers may transfer additional costs to consumers, potentially driving sector-specific inflation. 'To evaluate the policy's fairness and impact, tracking key indicators such as the Consumer Price Index (CPI) for affected items, consumer sentiment, retail sales performance and compliance rates across industries is highly recommended.' Meanwhile, the Federation of Malaysian Consumers Associations (Fomca) has urged the government to cushion the impact of the expanded SST by reassessing the tax list and reinstating exemptions for core necessities. Its secretary-general Dr Saravanan Thambirajah also called for targeted subsidies or tax offsets for low-income households to help cope with rising food prices. 'The government must strengthen enforcement to curb price manipulation and profiteering, and improve transparency so consumers can differentiate between genuine tax-driven price hikes and profiteering.' Saravanan said imposing taxes on essential goods sends a contradictory message – on one hand, the government pledges to protect vulnerable groups, but at the same time removes exemptions that have shielded them.
The Sun
12-06-2025
- Business
- The Sun
Call for clearer SST guidelines ahead of rollout
PETALING JAYA: The government is being urged to release a clear, centralised list of taxable and exempted items under the expanded Sales and Service Tax (SST) to prevent confusion ahead of its implementation on July 1. Economists warn that without authoritative guidance, businesses could face compliance issues and pricing disputes. They said a government-endorsed reference list is seen as critical to ensure clarity for companies, consumers and enforcement agencies. A Finance Ministry spokesperson said the expanded SST will include a 5% sales tax on both locally manufactured and imported goods. However, locally grown fruits will be exempt, while imported fruits will be taxed. 'Selected imported food items such as rice, wheat, sugar, salt and meat remain exempt as they are considered basic essentials,' the ministry said, adding that both local and imported palm oil used for cooking will also continue to be exempted. Still, confusion persists over what exactly is taxable. For example, cooking oil was initially believed to be taxed, but authorities later clarified that palm-based cooking oil, regardless of origin, remains exempt. Universiti Teknologi Mara Academy of SME and Entrepreneurship Development coordinator Dr Mohamad Idham Md Razak said the lack of clarity could lead to unintended consequences. He noted that while the move is a necessary revenue measure, broad tax hikes during economic uncertainty carry risks, and targeting luxury goods would be a more balanced approach. 'While lower-income groups may be shielded by continued exemptions on basic necessities, middle-income households could feel the pinch depending on their spending habits. 'Short-term inflation is a likely outcome if businesses choose to pass the additional tax burden on to consumers, particularly for goods and services that fall into the semi-essential category. But spending may not drop sharply if essentials remain unaffected.' Mohamad Idham also stressed that the expanded SST would only be effective if luxury goods and services are clearly defined, and if enforcement is strong enough to prevent loopholes, such as luxury vehicles or high-end entertainment options escaping taxation. He added that the government must closely monitor price hikes on semi-essential items, including mid-range electronics, and regularly review the exemption list to ensure it reflects current economic realities, particularly for middle-income households. 'In sectors such as private healthcare and education, where demand is relatively inelastic, service providers may transfer additional costs to consumers, potentially driving sector-specific inflation. 'To evaluate the policy's fairness and impact, tracking key indicators such as the Consumer Price Index (CPI) for affected items, consumer sentiment, retail sales performance and compliance rates across industries is highly recommended.' Meanwhile, the Federation of Malaysian Consumers Associations (Fomca) has urged the government to cushion the impact of the expanded SST by reassessing the tax list and reinstating exemptions for core necessities. Its secretary-general Dr Saravanan Thambirajah also called for targeted subsidies or tax offsets for low-income households to help cope with rising food prices. 'The government must strengthen enforcement to curb price manipulation and profiteering, and improve transparency so consumers can differentiate between genuine tax-driven price hikes and profiteering.' Saravanan said imposing taxes on essential goods sends a contradictory message – on one hand, the government pledges to protect vulnerable groups, but at the same time removes exemptions that have shielded them.
