Malaysia is delaying a planned expansion of its sales and service tax, providing a temporary reprieve for manufacturers bracing for higher US tariffs.
The planned widening of the tax base, originally due on May 1, will be implemented at a later date, a spokesperson from the Ministry of Finance said in a text message.
ALSO READ: SST expansion postponed, says ministry
Manufacturers have been urging the government to refrain from adding to their tax burdens this year after the US threatened a 24% tariff on the Southeast Asian country. The sector, a major contributor to the nation’s tax revenue, is under severe cost pressure, Tan Sri Soh Thian Lai, president of the Federation of Malaysian Manufacturers, said earlier this month.
The delay in the move "will provide some relief for businesses already grappling with the uncertainty caused by US tariff policy,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group.
"While this means that the additional tax revenue from the SST expansion will be put off, the bigger concern at present is the growth impact rather than the government’s finances.”
Malaysia’s ringgit rose 0.7% against the dollar to its strongest level since October as of 11:15 a.m. in Kuala Lumpur, the best performer among Asian currencies after the Thai baht.
Other Southeast Asian countries are also seeking to mitigate the impact of the trade war on their economies.
ALSO READ: SST expansion will help boost national revenue
The Philippines and Singapore have eased monetary policy this month, and investors increasingly expect Malaysia, Southeast Asia’s last holdout against interest rate cuts, to ease within the next six months. Still, the nation’s central bank has said it’s looking beyond monetary policy to weather the fallout from US tariffs, as officials weigh other tools to mitigate the impact on the economy.
Malaysia is seeking to negotiate a deal with Washington within the 90-day pause of the higher tariffs mandated by President Donald Trump, who has in the meantime imposed a 10% levy on goods from Malaysia and many other trading partners. The Southeast Asian country is currently reviewing its official growth projection of 4.5% to 5.5% for 2025, with the US levies causing uncertainty for investment and trade.
The finance ministry’s engagements with industries to finalise the scope of the expansion and the applicable tax rates have been completed, the spokesperson said. The guidelines and scope are being refined to ensure smooth implementation.
The tax changes will be gazetted on June 1, Datuk Anis Rizana Mohd Zainudin, director general of the Royal Malaysian Customs Department, responsible for the execution and enforcement of the sales and service tax, was quoted as saying by the Edge Malaysia. It was originally scheduled for the first quarter.
Prime Minister Datuk Seri Anwar Ibrahim, when he unveiled the nation’s budget in October, said the sales and service tax will apply to non-essential items, including premium imported goods such as salmon and avocado. It will also be widened to cover commercial services. - Bloomberg
