PETALING JAYA: Small and medium businesses are still reeling from the rise in the Sales and Service Tax (SST) from 6% to 8% last year and are steeling themselves against the fact that the rate will be expanded to cover more sectors this year.
They say that expanding the 8% SST rate would further impact their profit margins, which have been squeezed by the rise in the cost of goods and the minimum wage.
Some trade associations are claiming that 8% SST for certain sectors, such as tourism, entertainment and professional services, is making it harder for some businesses to recover from the Covid-19 economic shutdown.
Although they understand that the expansion of the 8% SST would give public coffers a much-needed boost, the impact on businesses could lead to less growth and subsequently, fewer corporate tax contributions.
“Businesses are simply earning less despite doing better at the top line,” said Datuk William Ng of the Small and Medium Enterprises Association of Malaysia (Samenta).
“This is evident in the disconnect between our gross domestic product growth and the stagnant tax collection,” said Ng, Samenta’s president.
“Any attempt at imposing a higher tax to collect more revenue may actually result in the opposite. Businesses will hold off on expansion plans, suffer greater margin compression, and end up paying less corporate income tax.”
Ng said that while the expansion of the SST may seem straightforward, it would require extensive adjustments for businesses and could impact consumers.
“If it’s expanded to cover all imported goods, we are essentially adding 5% to the input costs of most businesses, as the cascading effects will see goods across all categories going up,” he explained.
Instead, Ng urged the government to allow the e-invoicing regime to be completed and for other tax efficiency measures to kick in and produce results first.
Johor Master Builders Association Dr Kong Weng Keong said the tax hike has made it more difficult for some in the construction sector to recover from the Covid-19 pandemic.
“We can see that the government is striving hard to increase revenue, but the problem is most industry players have yet to recover from the impact of the pandemic,” Kong added.
Johor Indian Chamber of Commerce and Industry secretary-general Datuk K. Krishnan said the tax hike had led to some businesses closing shop.
“Even industries not directly involved in the tax hike, such as restaurants, are affected, as they rely on services from sectors impacted by it,” he said.
Hotel operators, meanwhile, say that the impact of the higher tax rate on hotel prices has been manageable.
For hotels in Johor, which mostly get guests from Singapore, the impact of rising hotel prices has been minimal due to the strong Singapore dollar.
“So far, the tax hike has not affected the hotel industry much. I think people are willing to pay a bit extra to stay in hotels, as going on holiday is not something they do all the time,” said Malaysian Association of Hotels (MAH) Johor Chapter chairman Ivan Teo.
“Since a majority of our visitors, especially for hotels in Johor Baru, are Singaporeans, they do not really mind the increase in hotel rates,” Teo said when contacted.
“In fact, I think the tax hike is a good move, as it will allow the government to increase its revenue, enabling them to upgrade more public infrastructure, especially those that can improve the tourism industry,” Teo added.
