PETALING JAYA: Even with essential food items exempt under the expanded sales and service tax (SST) regime, Malaysians are paying more for daily meals as higher tax costs ripple through the supply chain.
The expanded SST, which took effect on July 1, 2025, now covers a wider range of services including transportation, logistics, rental and other operational inputs.
These added costs, incurred earlier in the supply chain, are ultimately passed on to consumers, pushing up prices even for items that are officially SST-exempt.
Institute of Strategic Analysis and Policy Research (Insap) director Woon King Chai said the impact of the expanded SST was “undeniable”.
According to the think tank’s observations, prices of everyday items have risen, with iced Milo now costing RM3.70 compared with RM3.30 last year, and nasi lemak increasing from RM2.50 to RM2.90 in some outlets, a 16% jump.
Woon noted that the higher prices come from how the SST is imposed on key inputs such as transportation and rental.
“We are levying the SST on transportation, rental, on all these other sectors, and yes, KK Mart may not charge the SST for that can of baked beans, but the cost of that baked beans from the supply would have gone up by at least, by our estimates, 9%,” he told a panel discussion at the Malaysia Outlook Conference 2026 organised by the Institute for Democracy and Economic Affairs (Ideas).
He suggested that the government consider reinstating the goods and services tax (GST) to address the cascading effect.
While acknowledging that the government turned to the expanded SST and e-invoicing to widen its revenue base, Woon said these measures function as “GST-like mechanisms”. Unlike the GST, however, the SST does not have an input tax credit mechanism to remove the cascading effect of taxes along the supply chain.
Under the GST, every transaction is recorded, and businesses can claim back taxes paid on inputs, improving transparency and helping contain costs, Woon explained.
“With the GST, it ensures transparency all throughout the supply chain. Today, we do not even know why that packet of nasi lemak costs 16% more,” he said.
Speaking at the same panel, Institute of Strategic and International Studies Malaysia analyst Qarrem Kassim explained that under the current SST system, taxes are applied repeatedly at each stage as goods and services move from producer to consumer, creating a “cascading effect” that is often not transparent.
“Under the GST, you have a more competitive system because it is only effectively taxed once at the point of consumption. Everyone competes, and competition is what brings down prices,” he said.
Woon also argued that discussions on broad-based consumption taxes like the GST should no longer be politically taboo.
“The public must stop treating conversation on broad-based taxes like the GST like it is a political suicide.”
He noted that the GST was abolished following Pakatan Harapan’s manifesto pledge in the 14th General Election in 2018, but circumstances have changed.
“Eight years on, Malaysia has seen a general election and multiple administrations, yet the same argument keeps coming up: our tax base is too small.”
Malaysia’s tax-to-gross domestic product or GDP ratio is about 12.5%, far below the Asia Pacific average of about 19%, according to him. Woon also dismissed concerns that Malaysia is not ready for the GST due to income levels.
“There are 170 other countries around the world that have already done so. The issue with the GST is not that it is a bad policy. It was just poorly implemented before.
“The global economy at the time added a lot of pressure onto consumers and businesses too.”
On difficulties in tax refunds, he said delays often occur because collected funds go into the Federal Consolidated Fund, and refunds can only be released after budgetary approval.
He suggested setting up a dedicated fund for tax collections and refunds, ensuring taxpayers are reimbursed promptly.
The panel discussion was moderated by Ideas chief executive Aira Azhari, who said the reintroduction of the GST required “political capital” that often shrouds the conversation on the tax.
On politics, International Islamic University Malaysia political science professor Syaza Farhana Mohamad Shukri said Malaysia has shifted from single-coalition rule to a more complex arrangement involving multiple coalitions.
“We are not talking about parties coming together, we are talking about coalitions working together,” she said, adding that “there is another layer to that, not just bringing parties together.”
She said identity politics has become “part and parcel of our Malaysian politics,” creating fractures that make cooperation more difficult.
