Kuala Lumpur: The revision of Sales Tax rates and the expansion of the Service Tax scope form part of targeted fiscal measures to keep the nation’s finances on a sustainable path, tax experts said.

According to BERNAMA News Agency, PwC Malaysia tax leader, Steve Chia, stated that the review of the Sales and Service Tax (SST) was expected, having been announced in Budget 2025 last October. He urged the public to view the changes in a broader fiscal context. Chia pointed out that while the revisions aim to support medium-term fiscal goals, there remains a necessity to search for a longer-term solution to ensure sustainable revenue contribution for the country. He emphasized that the government is committed to containing the scope to selected and non-essential goods and business-to-business (B2B) services to avoid burdening the rakyat.

Finance Ministry II Minister, Datuk Seri Amir Hamzah Azizan, earlier announced that the government would implement the revised Sales Tax rates and expanded Service Tax scope from July 1, 2025, to strengthen the country’s fiscal position and improve support for public welfare. Chia noted that a key challenge would be ensuring cascading costs are either eliminated or not passed along the value chain. He also mentioned that since the Budget 2025 announcement, the government has engaged with relevant stakeholders, including industry associations and tax professionals, to ensure well-informed revisions considering industry impact and issues.

Meanwhile, KPMG Malaysia head of tax, Soh Lian Seng, observed that the current SST framework is often viewed as less comprehensive than the previous Goods and Services Tax (GST) system and sometimes criticized for being regressive. Soh remarked that the revision seems to be an effort to make the tax structure more progressive, broadening the base while ensuring the burden does not disproportionately fall on the rakyat. He added that expanding the scope of taxable services and revising rates could help improve revenue collection, which is essential for Malaysia’s medium-term fiscal consolidation.

Soh also highlighted that the government is likely aiming to enhance fairness and efficiency in tax collection by refining the scope and structure of the SST following the review announcement. He noted the potential for a short-term spike in consumer spending as people rush to make purchases before the new rates take effect, similar to patterns observed in 2015 ahead of GST implementation. However, he believed this would likely normalize within a few months, with the impact on inflation expected to be modest. Despite exemptions and reliefs in place, the net effect should still positively contribute to government coffers, supporting broader fiscal sustainability.