Narrower profit margins foreseen

SMEs will struggle to absorb additional costs due to SST hike, say businessmen

PETALING JAYA: The sales and service tax hike of two percentage points will present challenges for small and medium enterprises (SMEs), say stakeholders.

Kuala Lumpur and Selangor Indian Chamber of Commerce and Industry president Nivas Ragavan said SMEs will be operating with narrower margins and less capacity to absorb additional costs.

“SMEs will find it difficult to remain competitive unless they can innovate or optimise their operations efficiently.

“This places them at a disadvantage compared with larger corporations, potentially affecting their viability and growth prospects.

“Businesses within the service sector will also be compelled to restructure their pricing structures to maintain profitability, thus leading to an increase in consumer prices.

“As such, it may deter consumer interest in non-essential services, potentially engendering broader economic repercussions,” he said in response to the hike implementation, which took effect on Friday.

Nivas said the SST elevation from 6% to 8% could dampen retail expenditure as well as adversely affect the food supply chain, resulting in heightened prices at food outlets, even for items not directly impacted by the SST.

He said it could also cause an impact on consumer spending trends, influencing a shift towards essential services and goods at the expense of non-essential outlays.

“This realignment in consumer behaviour could negatively impact sectors dependent on discretionary spending, potentially hampering their growth and profitability,” he said.

Malaysian Muslim Restaurant Owners Association president Datuk Jawahar Ali Taib Khan also expressed concern about the effects of the increased tax on the pockets of businesses.

“They should retain the 6% tax instead of burdening operations costs. Every single thing will go up following the shift in tax.

“We are not increasing the price of food, but our profit margin has reduced despite higher demand.

“If they want a better tax system, the goods and services tax [GST] was far better because it was direct and transparent.

“The tax collected from it benefited the country as it allowed the government to spend more,” he said.

Jawahar Ali also said the food and beverage industry may not feel the effects of the hike – it retains the 6% rate – but consumers will be more conscious about dining in high-end places.

He also urged the government to look into the high volume of food wastage that occurs during Ramadan buffets.

Given the tax rate hike affecting costs, he said there should be a policy or law about wastage, to be in line with the current economic situation.

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