Progressive SST Framework by 1st July!

The Ministry of Finance (MOF) has announced that the implementation of the expanded Sales and Service Tax (SST) will take effect on 1 July 2025. Under the revised framework, a sales tax of 5% to 10% will be applied to selected non-essential items. 

Concurrently, the service tax (6% or 8%) will be broadened to cover additional service categories, including rental or leasing, construction, financial services, private healthcare, private education and beauty services. The government has expanded the scope of SST to strengthen the fiscal position by increasing and broadening the revenue base. A portion of the additional revenue will be redirected towards enhancing public services, while also creating fiscal space.

 

Source: https://en.wikipedia.org

To support a progressive and targeted approach, the government has structured the SST into two tiers (5%, 10%) based on the nature of necessity. Essential goods such as bread, cooking oil, milk, and medicine will remain exempted from tax. Instead, high value or premium products such as imported seafood (salmon, cod fish) and industrial machinery will be subject to SST. The expansion also targets specific services predominantly consumed by higher-income groups or non-residents. These include selected banking services, private healthcare for foreigners and private education where annual fees exceed RM60k. 

To minimise the impact, the government has introduced several reliefs and facilitative measures. Notably, key exemptions have been granted to business-to-business (B2B) transactions and group relief arrangements. Additionally, construction services, leasing and rental of residential buildings are also exempted. It is still not clear on the exemptions, especially on construction services with 6% SST. It (exemption) is probably on residential buildings. 

The government aims to increase fiscal revenue by RM5 bil, at 0.24% of gross domestic product (GDP), with an annual target of RM10 bil per year (0.48% of GDP). Rather than reintroducing the GST at 6% with an uplift of RM20 bil in revenue, the government has opted to enhance the SST, as it can be implemented quicker. 

The impact on inflation according to MOF is expected to be limited. According to MOF, the consumer price index is projected to remain within the forecast range of 2.0-3.5%. That must be wishful thinking! Once you raise the price for selected items, prices rise for all items! 

With the SST, 2025 fiscal deficit target is maintained at 3.8% of GDP (2024: -4.3% of GDP). 

The real issue will be inflation. While the Government seeks to increase revenue, there is no corresponding reduction in expenditure. Why can’t we have a DOGE or MAMPU or UKAS to review all operating expenditure and pare it down by 10% per annum or at least for one year?

 

References:

MOF rolls out progressive SST framework, aiming to raise RM10 bil annually, CS Ming, Focus Malaysia, 10 June 2025

Sales Tax Revision and Service Tax Expansion 2025, Crowe Malaysia, 10 June 2025