SST expansion delay could trim revenue but eases public strain - Economist

KUALA LUMPUR - The postponement of the implementation of the expanded scope of the sales and service tax (SST) is expected to result in a short-term decline in government revenue, but it also signals an opportunity for traders, the market and households to prepare for upcoming economic challenges, said an economist.

Bank Muamalat Malaysia Bhd's chief economist Dr Mohd Afzanizam Abdul Rashid said the decision is appropriate and represents a pragmatic move by the government, considering external challenges, including the increase in tariffs by the United States (US) on certain imported goods, which will directly impact Malaysia's export sector.

"The government's decision to postpone the implementation of the new SST is a pragmatic step that takes into account the changing global economic landscape," he told Bernama.

The SST expansion, initially slated for implementation in May 2025 as announced in Budget 2025, will now be deferred to a later date, a Finance Ministry spokesperson confirmed, in response to a report on the delay.

The spokesperson added that the ministry has completed nationwide engagement sessions with multiple industries to finalise the scope of the expansion and the applicable tax rates.

"The guidelines and scope are now being refined to ensure a smooth implementation," the spokesperson said.

Afzanizam added that the government must tread carefully in implementing the SST, as it will also affect companies and export-oriented traders, particularly given that reciprocal tariffs between the US and other countries place additional pressure on open economies like Malaysia.

On economic growth, he said the government may need to revise its earlier projection of between 4.5 per cent and 5.5 per cent.

The International Monetary Fund (IMF) and the World Bank had previously revised Malaysia’s growth forecasts to 4.1 per cent and 3.9 per cent, respectively.

Meanwhile, UOB Kay Hian Wealth Advisors Sdn Bhd's head of investment research, Mohd Sedek Jantan, said the government is likely mindful of public sentiment, especially given that the SST expansion could be perceived as adding to the cost of living at a time of economic uncertainty.

"Delaying implementation allows policymakers to better communicate the policy’s objectives and manage public response more effectively.

"But one thing I confidently see is that the postponement reflects a careful balancing act between fiscal goals, economic stability and administrative readiness.

"It shows that the government is attempting to address issues from multiple angles before implementing policies that directly impact the rakyat. The aim is to ensure a smoother rollout with minimal disruption to businesses, consumers and society at large," he said.

Economically, the broader SST framework is expected to have a notable impact on both consumers and businesses, he noted.

"Consumers may face higher prices as firms pass on the additional tax burden, while businesses, particularly those in the sectors most affected, may need time to adjust their pricing strategies, supply chains and operational models to comply with the new requirements.

"The government may therefore require more time to fully assess these impacts, particularly in relation to trade tariffs and key economic indicators such as consumer spending, corporate profitability and sectoral competitiveness," he said.

From an administrative perspective, Mohd Sedek noted that additional time may be required to finalise regulatory guidelines, train tax officials and upgrade digital infrastructure to facilitate a smooth transition.

He added that the postponement may also create more opportunities to engage with stakeholders, including industry groups, small and medium enterprises and consumer organisations, to address concerns and foster greater consensus, thereby reducing resistance to the change. - BERNAMA