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THE upcoming revision and expansion of Malaysia’s Sales and Service Tax (SST) framework is poised to bolster medium-term fiscal consolidation without introducing new taxes, according to Ernst & Young Tax Consultants Sdn Bhd (EY).
EY Malaysia’s tax managing partner Farah Rosley said the move is expected to increase tax collection by broadening the base, particularly within the growing services sector, while protecting basic goods and services from tax exposure.
“Notably, Malaysia has a relatively narrow tax base. Broadening the scope of SST enables the government to tap into specific sectors, particularly in the growing services economy, while ensuring that basic goods and essential services remain protected from tax exposure,” she told Bernama today.
“With efficient implementation and enforcement, these measures could help stabilise public finances, reduce reliance on oil-related revenue and create fiscal space for targeted subsidies or welfare programmes aimed at alleviating the rising cost of living,” she added.
Finance Minister II Datuk Seri Amir Hamzah Azizan announced on Monday that the revised SST would come into effect on 1 July 2025. The new framework includes an expanded service tax scope and tiered sales tax rates aimed at improving public welfare and fiscal strength.
Farah noted that the expansion to include sectors such as rental, leasing, construction, private healthcare, education, financial services and beauty was a “progressive approach” aligned with evolving consumption patterns in urban Malaysia.
She explained, “For the service tax, its expansion... reflects an effort to align the tax system with evolving consumption patterns, particularly in urban areas where service-based spending has grown.”
Farah also noted that while there could be “slight upward pressure on selected consumer prices,” the overall inflationary effect would be contained.
“The revised SST framework will have varied implications across sectors, depending on the nature of goods and services involved, the degree of reliance on imported inputs, and the sector’s exposure to consumer price sensitivity,” she said.
Meanwhile, Deloitte Malaysia’s indirect tax leader Tan Eng Yew echoed the view that while the SST expansion would enhance revenue, it would likely be passed on to consumers.
“The next important task for the government is to monitor prices of goods and services and take stern action on errant businesses that increase prices unreasonably,” he said.
Tan added that implementation would be key in limiting consumer burden.
On the market front, Kenanga Investment Bank Bhd said in a research note that the construction and consumer sectors are expected to see minimal impact, as the SST changes take into account public welfare.
However, the Real Estate Investment Trust (REIT), private healthcare and financial services sectors may experience some pressure, it said.
Hong Leong Investment Bank Bhd similarly viewed the expansion as “targeted and structured,” with limited market disruption.
“While sectors such as construction, banking and healthcare may appear exposed, we expect any earnings impact to be negligible,” the bank noted, adding that most construction contracts allow for cost transfers, and that new project tenders would be adjusted accordingly.
On the financial services side, it added that banks are unlikely to be significantly affected, as they would act merely as tax collection agents on behalf of the government. - June 10, 2025
