Is it a Balancing Act for SST?

After a two-month delay, the government has announced that the targeted revision of the sale tax rate and expansion of the service tax scope will be implemented on July 1. A grace period is given for companies to comply with the newly revised sales and service tax (SST), with no prosecution or penalties to be imposed until Dec 31. 

The expanded SST framework is part of broader fiscal reforms aimed at strengthening the country’s fiscal position through increasing revenue and broadening tax base.  But to the detriment of the B40 and M40.

 

Source: https://www.financialexpress.com 

It is projected to yield RM5 billion in tax revenue this year, or an annualised RM10 billion for a full year, to help offset lower oil revenue. The Finance Ministry wants to meet Budget 2025’s fiscal deficit target of 3.8% of gross domestic product despite GDP growth of below 4.5%.

The timing of the implementation must consider the economic conditions and business environment. It is widely acknowledged that the Malaysian economy has slowed, with growth moderating from the second half of last year and continuing into the first half of this year. 

The current global geopolitical landscape, US trade policies, and recent escalation of conflicts in the Middle East present significant downside risks to the global economy, potentially causing spillover effects. Businesses are expressing caution due to ongoing concerns about disruptions induced by tariff uncertainty, leading to a more cautious approach to spending and investment. 

Consumers are likely to adjust their discretionary spending even amid stable labour conditions and low inflation of 1.5% in the first four months of this year. 

Businesses are naturally concerned about the “bunching” of cost increases as they can significantly impact profitability, cash flow, and even viability of the business. These include the RM200 rise in the national minimum wage to RM1,700 per month, the planned implementation of 2% employers’ contribution to the Employees Provident Fund for foreign workers, reduction in the subsidy for RON95 fuel and an impending hike in electricity tariffs as well as the forthcoming port tariff adjustment of 30% at Port Klang implemented in phases over a three-year period, starting July 1.

With businesses already reeling from rising operating costs, implementing the expanded SST could further burden businesses with increased costs and squeezing their profit margins. Most construction contracts are normally awarded on a fixed-price and fixed-duration basis, which limits the industry’s flexibility to absorb new costs without disrupting the project delivery. Operating costs increases due to a 8% service tax on rental or leasing together with other personnel cost-related measures indicate that the operating costs for a small enterprise in business services would rise by 6.1% or RM8,398 per month. Costs for a small enterprise in the fashion business could increase by 8.9% or RM5,924 per month, and a medium-sized enterprise in manufacturing could face an 11% increase in costs or RM26,058 a month. 

Ultimately, increased business costs, if not absorbed, would be passed onto consumers, potentially dampen discretionary consumer spending due to higher prices of non-essential goods and a wider range of taxed services. 

Under the revised sales tax structure, a total of 3,409 items previously exempted are now subject to tax, with 3,216 items (28.1% of total goods) at 5%, and 193 items (1.7%) at 10%. In total, out of 11,458 items, 1,809 items (15.8%) remain exempted, while 4,077 items (35.6%) are taxed at 5% and 5,547 items (48.4%) at 10%. 

Cost of living remains a key issue due to slow wage growth of 7% in nominal wages per worker from 2019 to 2024. Household expenditure data showed that the B40 category spend 52% of their income on necessities, followed by 37% for the M40, and 32% for the T20. 

The FMM expressed frustration that while it was consulted on the sales tax expansion — leading to retained exemptions for essential goods — there was "no consultation" on the equally significant expansion of the service tax. FMM estimates indicate that businesses in logistics, manufacturing and retail relying on rented premises could see annual cost increases of RM24,000 to RM60,000 per premises that may either be passed on to consumers or force businesses to scale back operations.

 

FMM wants the government to postpone the enforcement of the expanded SST until a full economic impact assessment is completed. It also urged the inclusion of broader exemptions, particularly for capital equipment. 

An independent body like a Fiscal Policy Institute or MIER should undertake an economic assessment of all the tax measures planned. The government wants to focus on its fiscal deficit but why can’t they review expenditures and und ways to reduce them. Even the Audit Report highlights them but there is little follow-up. Only a government that intends to lose the next election will do this! 

References:

A balancing act for SST, Lee Heng Guie, The Star, 18 June 2025

 

FMM slams “highly damaging” expanded SST, warns of wide-ranging cascading impact, Joh Lai, TheEdgeMalaysia, 13 June 2025

Jobs AI Will Replace by 2030 (Part 1)

Artificial intelligence is advancing fast. The big question is how long it will take until technology dominates the job market. Will you be caught up in the change? With the U.S. navigating a $36 trillion debt, tariff tensions, and economic uncertainty, the spectre of disruption from AI adds urgency for workers to protect themselves. 

Artificial intelligence is expected to fundamentally transform the global workforce by 2050, according to reports from PwC, McKinsey, and the World Economic Forum. Estimates suggest that up to 60% of current jobs will require significant adaptation due to AI. Automation and intelligent systems will become an integral part of the workplace.

 

Source: https://commons.wikimedia.org 

Estimates vary, but experts converge on a transformative window of 10 to 30 years for AI to reshape most jobs. A McKinsey report projects that by 2030, 30% of current U.S. jobs could be automated, with 60% significantly altered by AI tools. Goldman Sachs predicts up that to 50% of jobs could be fully automated by 2045, driven by generative AI and robotics. 

Goldman Sachs previously estimated that 300 million jobs could be lost to AI, affecting 25% of the global labour market. On the bright side, AI is least threatening to labour-intensive careers in construction, skilled trades, installation and repair, and maintenance. 

Dalio warns of a “great deleveraging” where AI accelerates productivity but displaces workers faster than new roles emerge, potentially within two decades. Larry Fink, the CEO of Black Rock, speaking at the Economic Club of New York, cautioned that AI’s impact is already visible in sectors like finance and legal services, predicting a “restructuring” of white-collar work by 2035. Jamie Dimon, CEO of JPMorgan Chase, estimates in his shareholder letter that AI will dominate repetitive tasks within 15 years. 

The actual pace depends on technological breakthroughs, regulatory frameworks, and economic incentives. Hedge fund billionaire Bill Ackman, who runs Pershing Square, argues that corporate adoption of AI is accelerating due to cost pressures, potentially shrinking timelines.

AI’s impact will not be uniform. Some jobs will fall quickly, while others resist longer. Jobs like data entry, scheduling, and customer service are already being overtaken by AI tools like chatbots and robotic process automation. 

A 2024 study by the Institute for Public Policy Research found 60% of administrative tasks are automatable. Fink notes that BlackRock is streamlining back-office functions with AI, cutting costs. These roles, requiring repetitive data processing, face near-term obsolescence as AI’s accuracy and scalability improve. 

Bookkeeping, financial modelling, and basic data analysis are highly vulnerable. AI platforms like Bloomberg’s Terminal enhancements can already crunch numbers and generate reports faster than humans. Dimon warns that JPMorgan is automating routine banking tasks, with 20% of analytical roles at risk by 2030. 

Paralegal work, contract drafting, and legal research are prime targets, as AI tools like Harvey and CoCounsel automate document analysis with 90% accuracy, according to a 2025 Stanford study. Dalio highlights AI’s ability to parse vast datasets, threatening research-heavy roles in academia and consulting. Senior legal strategy and courtroom advocacy, however, will resist longer due to human judgment needs. 

Graphic design, copywriting, and basic journalism face disruption from tools like DALL-E and GPT-derived platforms, which produce content at scale. A 2024 Pew Research Centre report notes that 30% of media jobs could be automated by 2035. Ackman, commenting on X, predicts AI-generated content will dominate advertising soon but argues human creativity in storytelling and high art will endure longer, delaying full automation. 

Diagnostic AI and robotic surgery are advancing, but empathy-driven roles like nursing, therapy, and social work are harder to automate. A 2023 Lancet study estimates 25% of medical administrative tasks could vanish by 2035, but patient-facing care requires human trust. 

Teaching, especially in nuanced fields like philosophy or early education, and high-level management jobs rely on emotional intelligence and adaptability, which AI struggles to replicate. A 2024 OECD report suggests only 10% of teaching tasks are automatable by 2040. Dimon and Ackman stress that strategic leadership, navigating ambiguity and inspiring teams, will remain human-centric. Are you ready for the disruption? 

Reference:

These Jobs Will Fall First As AI Takes Over The Workplace, Jack Kelly, Forbes, 25 Apr 2025

Why is Madani so Desperate?

The Madani Government seems so desperate to do the following:

1.               Raise electricity tariffs from1 July 2025.

2.               Increase port charges by up to 30%, also starting 1 July 2025.

3.               Expand the sales tax to cover 97% of all goods and impose service tax on education, healthcare, beauty, finance, rentals, and industrial sectors — even fruits, salt, raw sugar and seawater are now taxed; all starting 1 July 2025.

4.               Maintain Petronas’ RM32 billion dividend payouts — same as last year — even though Petronas profits have plunged by 32%, forcing them to retrench over 5,000 employees and freeze all promotions and new hiring until end-2026.

5.               Implement the Stamp Duty Act, 1949 for all contracts; and

6.               Planning to hike RON95 fuel price in the second half of 2025.

The answer is probably “blowing in the wind” (not the Bob Dylan song) but Madani has failed to manage the economy and national debt responsibly. Let’s look at some its actions thus far:

 

(i)              Revenue, Spending & Deficit (Jan–April)

Government Revenue:

 

• 2022 - RM82.0 billion (Q1 still under lockdown, economy reopened in April)
• 2023 - RM98.6 billion
• 2024: RM93.2 billion
• 2025: RM97.1 billion

Even with multiple new and expanded taxes (LVGT, CGT, dividends, SST widening), revenue in 2024 and 2025 is still lower than in 2023.
That means the economy isn’t growing fast enough to generate more tax income or are there leakages?

Next, Government Spending has been on the rise:
• 2022: RM116.5 billion
• 2023: RM122.8 billion
• 2024: RM133.2 billion
• 2025: RM127.8 billion

And the overall budget deficit remains sticky:

• 2022: -RM34.4 billion
• 2023: -RM24.1 billion
• 2024: -RM40.0 billion
• 2025: -RM30.7 billion

The deficits in 2024 and 2025 are worse than in 2023, despite extraordinary one-off support in 2024:

• KWAP dividend: RM5 billion (vs forecast RM3 billion)
• BNM dividend: RM5.25 billion (vs RM2 billion)
• RM2 billion from amendments to the Unclaimed Monies Act
• RM2 billion early payment from Petronas for the Bandar Malaysia land deal

Apart from the final RM4 billion payment from Petronas, most of these revenue windfalls will not recur in 2025.

(ii)       Government Debt and Debt-to-GDP Ratio

As of 16 June 2025, the government has already borrowed a net RM64.28 billion — that’s 79.4% of the RM81 billion debt limit set in Budget 2025, even though only 45.8% of the year has passed.

This means that either they have to cut spending drastically or squeeze the rakyat further to raise more taxes — quickly — because there’s only RM16.7 billion in borrowing room left for the rest of 2025.Due to stagnant revenue and rising spending, government direct debt has soared:

• Nov 2022: RM1.071 trillion
• Jun 2025: RM1.305 trillion
• That’s an increase of RM234.2 billion in just 30 months of Madani.

Debt-to-GDP ratio has also surged from 60.3% to 65.5% by Q1 2025. This shows that debt is rising faster than economic growth. If GDP were truly expanding in a healthy way, this ratio should be going down - not up.

(iii)      Government Debt Servicing Costs (Interest Only)

• 2022: RM41.3 billion
• 2023: RM46.1 billion
• 2024: RM49.8 billion
• 2025: RM54.7 billion

 

 

With an additional RM81 billion in borrowing for 2025, interest payments in 2026 are projected to hit RM63 billion. That’s an increase of RM21.7 billion in annual interest payments in just 3 years — and this is just interest, not even principal repayment. In 2017 under Najib, the total annual debt servicing cost was only RM28 billion.

Bottom Line: Is Madani Squeezing the Rakyat to Cover Their Own Failures?

To preserve their budget targets, slow the debt spiral, and fund ballooning interest payments, the Madani government will continue extracting from the rakyat — through every possible means — to cover up three years of economic mismanagement. When you don’t know how to run a country, everyone else will pay the price. 

As a responsible Government, one would present a reduction in operating expenditure and arrest leakages. Then only attempt to introduce less controversial taxes. But no, they insist on induced inflation especially with tariffs still not sorted. Why can’t you do the Tobin tax (for banks), widen the excess profit tax and increase the “sugar” tax?

“Feels Like Cheating”

Malaysia celebrated a dominant 4-0 victory over Vietnam in the 2027 Asian Cup qualifiers. However, many local fans voiced concerns over the national team's increasing reliance on naturalized players. The most upvoted comment responded to the post: "Oh right. The three key players who scored for Malaysia were Johan Figueiredo, Ramasami Holgado, and Lim Corbin-Ong."

The Football Association of Malaysia (FAM) reportedly plans to naturalize even more players, potentially fielding a squad without any locally raised players, similar to Indonesia's recent policy. This trend has boosted the squad value of Malaysia and Indonesia, putting them ahead of regional rivals like Vietnam and Thailand, who have naturalized some players with foreign blood but still rely primarily on domestic talent.

 

With a squad strengthened by high-quality players of South American and European origins, hosts Malaysia completely dominated Vietnam at the 2027 Asian Cup qualifiers.

Malaysian defender Matthew Davies and head coach Peter Cklamovski remain focused on their upcoming match, dismissing rumours about the alleged illegal naturalization of several new players.

We don’t realise or refuse to accept that on merit, foreign players naturalised are better than local talent. Why are the likes of Akmal not questioning this policy of sidelining local bumiputra talent? Surely, we must limit foreign talent (naturalised) not to exceed say, 4 in a team of 11? What if all 11 are “foreigners”? Could we have Ronaldo playing for us?

If the above is feasible in football, could we apply the same for companies or specific sectors in the economy? What is so different? If we have the best talent to represent Malaysia and work for Malaysia, our GDP will not be RM2.0 trillion but RM4.0 trillion in 10 years. Then the pie is large enough to distribute to the disadvantaged group, and no one will have cause to create tension. Isn’t that brilliant? It’s not cheating but being real in a competitive world. Just do it!

 

Reference:

'Feels like cheating': Malaysian fans express concern over naturalized players despite big win over Vietnam, Hoang An, VnExpress,12 June 2025

Malaysia’s Oil Trade Dynamics

Malaysia is a net exporter of crude oil and condensates, but it imports refined petroleum products (including RON 95) due to insufficient domestic refining capacity for local demand. While Malaysia earns revenue from oil exports, the cost of importing refined fuel (even lower-grade oil) is influenced by global prices.

As of mid-2025, Malaysia's oil export revenue and import costs were influenced by global crude prices, domestic production, and refining capacity. However, official detailed figures for 2024 and H1 2025 are not yet fully published, but we can estimate based on recent trends and available data.

 

Source: https://en.wikipedia.org

·         Key Estimates (2024 & H1 2025):
Petroleum Export Revenue (Crude Oil + LNG + Petroleum Products)
- 2024 (Full Year): ~RM150–170 billion
- Global oil prices averaged $80–85/barrel (Brent) in 2024.
- Malaysia’s crude oil & condensate exports: ~500,000–600,000 barrels/day.
- LNG exports (a major revenue source): ~30 million tonnes/year.
- H1 2025 (Estimate): ~RM75–85 billion
- Oil prices remained $75–82/barrel in early 2025.

·         Petroleum Import Cost (Refined Products + Crude for Refining):
- 2024 (Full Year): ~RM120–140 billion
- Malaysia imports RON 95, diesel, and jet fuel due to refining gaps.
- Net import dependency: ~30–40% of domestic fuel demand.
- H1 2025 (Estimate): ~RM60–70 billion
- Prices moderated slightly compared to 2024.

·         Net Oil Trade Balance (Revenue - Cost)

Year	Export Revenue (RM)	Import Cost (RM)	Net Surplus (RM)
2024	~150-170b	~120-140b	+30-50b
H1 2025	~75-85b	~60-70b	+10-15b

 

Key Takeaways:

·       Malaysia still earns a net surplus from oil & gas trade, but subsidies do consume a large portion.

 

·      Fuel subsidies (RON 95, diesel) cost ~RM30–40B/year, offsets much of the net oil revenue.

·      Global price volatility matters—if oil prices drop, Malaysia’s surplus shrinks, in the converse we have a larger surplus.

There are many economists rushing to state that subsidies must be done away with for greater efficiency. We are a net oil exporter and when prices go up, we are better off. And of course, subsidy for RON95 also goes up. But if you remove the subsidy we will have “amok” inflation. So, what should we do?

Do a subsidy/price range for a tight floating RON95, so within that range we have a fixed subsidy and RON95 prices may move marginally every week. There is full subsidy outside the upper limit while below the lower limit, the Government does not subsidise. Can we do that? This Government’s targeted subsidy scheme is pointless, and without Rafizi it will not work.

 

The Petronas and Petros Feud (Part 2)

1.         Control Over Gas Distribution Rights

·             Sarawak insists that Petros should be the sole gas aggregator in the state, managing gas procurement, pricing, and distribution under the Sarawak Distribution of Gas Ordinance 2016 (DGO).

·             Petronas, governed by the 1974 Petroleum Development Act (PDA), asserts federal control over all oil and gas operations, including exports. 

·             The clash stems from Sarawak’s claim that the PDA does not apply to the state, citing pre-independence laws like the 1958 Oil Mining Ordinance. 

Source; https://ms.m.wikipedia.org

2.         Revenue and Economic Impact

·             If Petros takes full control, Petronas could lose RM10–20 billion annually, affecting federal revenue and subsidies for Malaysians.

·             Sarawak currently receives only 5% royalties but seeks higher returns to fund local development (e.g., free education, infrastructure). 

3.         Legal and Operational Conflicts

·              Petros has sued Petronas over issues like a RM7.95 million bank guarantee and accused it of operating without state licenses.

·             Shell MDS has withheld payments due to the dispute, setting a precedent for other contractors to delay projects. 

4.         Political Tensions

 

·         Sarawak’s ruling coalition (GPS) is a key ally in PM Anwar’s unity government, giving it leverages to push for autonomy.

·         The federal government risks fragmentation if other states (e.g., Sabah) demand similar resource control. 

 

5.         Investor Uncertainty

·              Prolonged disputes have spooked investors, with projects like ConocoPhillips’ Salam-Patawali withdrawal and Shell’s legal challenges. 

Will the Dispute Be Resolved?

(a)        Short-Term:

PM has expressed confidence in a negotiated solution, but talks have stalled multiple times. A May 2025 joint declaration affirmed Petronas’ role in LNG exports while allowing Petros domestic gas control, but enforcement remains unclear. 

(b)        Long-Term: 

                    i.     Political Compromise: Anwar may need to concede greater revenue sharing or operational roles to Sarawak to maintain GPS support. 

 

                 ii.      Legal Clarity: Courts may ultimately decide whether Sarawak’s laws override federal authority, but a Pyrrhic victory for either side could worsen tensions.

 

               iii.      Economic Rebalancing: Federal reforms (e.g., sharing consumption tax revenue) could reduce reliance on Petronas dividends and ease state-federal conflicts. 

The tussle reflects deeper federal-state power struggles and Sarawak’s push for autonomy. While short-term resolutions are possible, lasting peace requires revenue-sharing reforms and clear legal frameworks to balance national and regional interests. The outcome will shape Malaysia’s energy governance and economic stability for decades. 

The Petronas and Petros Feud! (Part 1)

Petronas and Petros have been locking horns for more than a year now over the role of gas aggregator in the state. A resolution was supposed to have been reached on July 1, 2024, but the deadline was extended to Oct 1, 2024. Yet almost a year later, a resolution still seems elusive.

Sarawak is challenging Petronas’ hold over Malaysia’s oil and gas reserves, as stated in the Petroleum Development Act (PDA) of 1974, which gives the national O&G company control of all of Malaysia’s hydrocarbon reserves. However, Sarawak holds about 60% of the country’s gas reserves and accounts for 90% of Malaysia’s liquefied natural gas (LNG) exports — facts that have led state-controlled Petros to clamour for the sole aggregator’s role.

This role would entail Petros acquiring gas from upstream producers and consolidating and selling it to downstream players. Petros would also be tasked with building and managing the requisite infrastructure, including condensing and processing facilities, pipelines and even export terminals. To counter the PDA 1974, Sarawak has amended the state’s Distribution of Gas Ordinance (DGO) 2016 for Petros to be the sole gas aggregator for the state and require any company undertaking gas distribution activities in Sarawak to get a licence.

Petronas and Petros are currently embroiled in a number of legal disputes. Earlier this month, Petronas was slapped with a letter of demand as its exploration subsidiary Petronas Carigali Sdn Bhd’s plant at the Miri Crude Oil Terminal was alleged to be in violation of the DGO 2016, possibly operating without a licence and undertaking gas distribution. 

Sarawak is relying on a pre-independence Oil Mining Ordinance to assert its rights over the state’s oil and gas resources and other land code legislation that stipulates that its continental shelf stretches 200 nautical miles out to the sea, as opposed to the current PDA, which limits the territorial waters to three nautical miles from the coast and assigns all rights beyond that to Petronas.

So, what are the key issues, and can it be resolved? Read Part 2 tomorrow.

References:

O&G industry suffers as Petronas-Petros feud drags on, Jose Barrock / The Edge Malaysia, 2 June 2025

‘Puzzling’: Malaysia’s new rules for Sarawak’s oil and gas sector set to trigger fresh political tensions, Leslie Lopez, Channel News Asia, 10 Feb 2025