Is the expanded SST much ado about nothing?

"Much ado about nothing" is a Shakespearean play about courtship and scandals. Much ado is seldom used when someone is overreacting and makes a big fuss over something unimportant. 

Introduction of new taxes will not be taken well by anyone, so there is something to ado over the government announced expended Sales and Service Tax (SST) to take effect soon.

It will have an impact on the mid- to high-income households, and businesses in the construction, healthcare, beauty, and education sectors. 

There were much ado over Anwar's mistake to mention GST as broad based General Services Tax. 

But the bigger ado was the nitpicking over taxing import dependent supply of fruits, in which apples and orange (but not pears) have been taken off the list. 

Supposedly the expended SST is targeted on imported goods, and goods and services for the higher income bracket, primarily T20s. 

It will be translated into the cost of living in all aspect of Malaysian life.

More in Says.com's Expanded SST — Here's A List Of Everything That Will Cost 5 To 10% More Starting 1 July. 

In the nutchell, Gemini AI summarised the issue as follows;

The expanded Sales and Service Tax (SST) in Malaysia, set to take effect on July 1, 2025, has sparked significant debate and concern. While the government aims to increase revenue and potentially balance the burden on lower-income households by exempting basic goods, there are worries about the impact on businesses, inflation, and the cost of living. 

Here's a breakdown of the key issues:

What's Changing:

Service Tax Increase:

The service tax rate is rising from 6% to 8% on certain taxable services. 

Expanded Scope:

More services, including rental and leasing, will be subject to the service tax. 

Exemptions and Thresholds:

Some services will remain exempt, such as those related to residential housing, reading material, and business-to-business (B2B) transactions. There are also higher thresholds for businesses to register for SST, potentially exempting more small and medium-sized enterprises (SMEs). 

Potential for Higher Prices:

Businesses may pass on the increased tax burden to consumers, leading to higher prices for goods and services. 

Impact on Businesses:

Businesses, particularly those in sectors like construction and services, may face increased costs and need time to adjust their operations. 

Government Response:

The government is providing a grace period for businesses to comply with the new rules and is working on issuing detailed regulations and guidelines. 

Concerns and Criticisms:

Inflation:

The expansion of SST has raised concerns about potential inflationary pressures, particularly with the inclusion of some previously exempt essential goods. 

Cost of Living:

The impact on the cost of living, especially for lower-income households, is a major concern, despite the government's efforts to provide exemptions. 

Business Burden:

Some business groups are calling for a deferment or review of the SST expansion, citing concerns about increased costs and the potential impact on their operations. 

Confusion and Uncertainty:

The initial gazetted list of taxable goods caused confusion, with some items previously exempt appearing on the list. 

Government's Perspective:

Revenue Generation: The expanded SST is intended to boost government revenue. 

Balancing Act: The government is trying to balance revenue generation with the need to mitigate the impact on businesses and consumers. 

Administrative Readiness: The government is acknowledging the need for more time to finalize regulations, train tax officials, and upgrade infrastructure to ensure a smooth transition. 

In essence, the expanded SST is a complex issue with potential benefits and drawbacks. While it is expected to generate more revenue for the government, it also carries the risk of increased costs for businesses and consumers, potentially leading to higher inflation and a heavier burden on those with lower incomes. The government is trying to navigate these challenges by providing exemptions, grace periods, and detailed guidelines, but the full impact of the SST expansion remains to be seen. 

The question to be asked now: Is the Malaysian opposition politicians and public uproar over extended SST to take effect on July 1st justified? 

ChatGPT summarised it as follows:

The public and opposition uproar over the extension of the Sales and Service Tax (SST) in Malaysia, set to take effect on July 1st, 2025, is partly justified, depending on the angle you view it from — economically, politically, and in terms of public trust. Here's a breakdown of the justification and concern:

✅ Justified Concerns (From Opposition & Public)

1. Cost of Living Pressure

• Bread-and-butter issue: With inflation, subsidy rationalisation (e.g. fuel, electricity), and food prices already impacting the lower and middle-income groups, the SST extension adds to cost pressures.
• Services affected: The expansion now includes more professional and digital services, which previously were not taxed under SST, e.g. logistics, consultancy, legal, and maintenance services — potentially affecting businesses and consumers indirectly.

2. Timing Amid Economic Fragility

• Malaysia is recovering from COVID-era economic stress, with some sectors still fragile.
• Youth unemployment and household debt levels remain high; introducing a broader tax net may stall recovery for micro and small enterprises.

3. Transparency & Communication Gap

• Many critics argue the government failed to explain clearly:
• What services/products are now taxable.
• How the new 8% SST (vs previous 6% for services) will be used.
• The safeguards for vulnerable populations.
• Without public buy-in, this creates distrust and confusion, especially when the tax affects daily necessities indirectly.

4. Disparity in Impact

• The SST is a regressive tax — it takes a larger portion from lower-income groups compared to the rich.
• Unlike income tax, SST doesn't differentiate who can afford to pay more.

❌ Counterpoints: Justified from Government’s Fiscal View

1. Malaysia’s Narrow Tax Base

• Less than 20% of the working population pays income tax. The government needs to broaden revenue streams to reduce fiscal deficit and fund public services.
• SST is seen as less invasive than reintroducing GST (Goods & Services Tax), which previously caused widespread discontent.

2. Debt & Subsidy Rationalisation

• Malaysia’s debt-to-GDP ratio is over 60%. Revenue through SST expansion helps buffer the budget, especially as subsidies (like fuel) are being targeted or rationalised
• It can be argued that responsible fiscal management — even if unpopular — is necessary for long-term economic health.

🧠 Summary Evaluation

The opposition and public are justified in raising concerns — mainly due to timing, lack of clarity, and real pressure on cost of living. However, from a fiscal policy standpoint, the government has a valid reason to diversify revenue in a sustainable way.

The real issue is execution and communication — whether targeted relief or rebates will accompany the SST rollout, and whether the burden on the poor can be mitigated.

Would you like a comparison between the SST expansion and the former GST system, including political and economic implications?

Well, we'll take it from there. 

GST is a far more superior consumption tax system than SST. By the way, as refresher it is Goods and Services Tax. 

GST has been demonised so bad that it is not politically viable to reinstate it. 

Should Najib got pardon and out of prison, then by the oft chance to find his way back into politics and if ever, eventually get back to the pinnacle of power, he will not take that same risky political route again.

The business community, mainly dominated by Chinese are generally adverse to tax and allergic to government bureaucracy. 

Even the mega Kuok Group indulge in evading taxes. See in Corporate Secret HERE of them got caught with their pants down in Indonesia doing their 1980s do of transfer pricing. 

They will oppose GST at all cost for the one simple reason that the VAT or GST a full proof system that cover up any tax loophole and any revenue will not go undetected for taxation. 

They will oppose GST at all cost for the one simple reason that the VAT or GST a full proof system that cover up any tax loophole and any revenue will not go undetected for taxation. 

Anwar does not have the political will or consensus to push through against the well organised Chinese business community

It is more than the stated reasons of broad based tax or worried it will affect the rakyat. Any form of tax will effect rakyat 

When GST was implemented, there were yoko holding back the rebate for the traders. The money was channeled into the government Consolidated Account, which is a major constraint to retrieve it out and pay back the rebate.

The then opposition spin it as money meant to pay 1MDB. But then wait awhile because there will be opposition spinning expanded or extended SST is meant to service the RM1.3 trillion national debt. 

Due to bad fiscal management of Mahathir-led PH1.0 and subsequently Covid 19 crisis and abuses during the two PN Prime Ministers coupled with implementation delay arising from policy clash between Rafizi and Ministry of Finance officials, RM688 billion debt left by Najib doubled!  

If GST were toresume, then traders would seek for some RM6 billion rebate be paid first and the paperwork need to be sorted and digging through 7 years ago documents will be a big mess.

So fellow GST fighters, forget about it.