PETALING JAYA: A “thoughtful approach” to tax policy is essential to maintaining the country’s economic stability and growth, says the Malaysian Employers Federation (MEF).
“There should be a balanced approach to any potential SST expansion, prioritising business competitiveness and economic resilience,” MEF president Datuk Dr Syed Hussain Syed Husman (pic) said, in reference to the Sales and Service Tax.
To enhance the current taxation framework, MEF has proposed several measures.
These include reviewing corporate tax rates for increased competitiveness, expanding tax incentives for automation and sustainability, reducing bureaucratic red tape and providing more support for MSMEs (micro, small and medium enterprises) and employee training.
“Implementing an efficient e-tax system and offering incentives in digital transformation can significantly benefit the business landscape,” he said when contacted for his views on the impact of the 8% service tax one year after it began.
In March last year, Malaysia’s service tax went up from 6% to 8% for all services except those in food and beverage, telecommunications, parking, and logistics.
Syed Hussain said the rise had impacted sectors, particularly those in finance, hospitality, legal and IT services.
Although not all sectors faced the additional tax, he said it had stirred concern among businesses who are worried about potential further expansion.
“Businesses have had to navigate increased operational costs, which inevitably trickle down to consumers.
“While the logistics sector received some relief through targeted exemptions, MSMEs are still grappling with these added financial burdens,” he said.
Syed Hussain noted that the increase in SST had contributed to rising living costs and inflationary pressures.
“Complex SST procedures add another layer of difficulty for businesses, necessitating updates in technology and compliance measures, which further strain resources,” he said.
Syed Hussain also expressed concern over the Finance Ministry’s plans to expand the SST.
“Any expansion could potentially burden MSMEs further and escalate operational costs, impacting their competitiveness.”
He warned that consumers might bear the additional costs, which would result in lower spending and slower economic growth.
Syed Hussain was of the view that a Goods and Services Tax (GST)-like system would offer a more transparent and balanced approach.
“This could alleviate some of the inefficiencies seen with the current SST model,” he said, adding that stakeholder consultation is crucial.
“We urge the government to engage with businesses to ensure any changes are implemented smoothly and equitably.”
When contacted, Associated Chinese Chambers of Commerce and Industry of Malaysia treasurer-general Datuk Koong Lin Loong said less revenue was collected from the tax increase, as its scope did not cover all services.
“Key consumer expenses like food, restaurant services and parking remain at a 6% tax rate, minimising the overall impact because the hike primarily affects less frequently used services such as professional and legal offerings,” he said.
Koong also voiced concerns over the government’s plan to expand SST’s scope.
(Finance Minister II Datuk Seri Amir Hamzah Azizan spoke to Sunday Star on March 9 about expanding the SST to generate revenue.)
The Finance Ministry had also previously stated that Putrajaya would propose to maintain 0% tax rates on essential goods, but a rate of between 5% and 10% will be extended to non-essential goods, high-value imported goods, and processed goods.
In response, Koong said: “An expansion would resemble GST in taxable scopes but lacks the input tax refund mechanism, potentially burdening consumers as businesses pass on costs to maintain profits.”
He said the current SST system is outdated, describing it as a one-way tax unlike the globally adopted GST, which provides transparency and protects businesses from increased raw material costs.
“An expanded SST could spark inflation, further elevating consumer prices.
“We need measures like the Price Control Act to effectively counteract inflationary pressures, particularly since many goods are already costly,” he said.
Koong called for a return to a GST-like mechanism but under a different name.
“It can be under another name, but adopting the GST framework.
“It would enhance efficiency, transparency and fairness in indirect taxation for businesses, consumers and authorities alike,” he said, adding that this approach could streamline the tax system and enhance economic stability.
As Malaysia navigates its fiscal policies, Koong said there must be a balanced approach to taxation that prioritises both economic efficiency and consumer protection.
However, Amir Hamzah had told Parliament on March 5 that there are no plans to reintroduce the GST because it is a form of broad-based consumption tax that could burden Malaysians from the lower-income group.
