KUALA LUMPUR (June 18): The government expects the expanded sales and service tax (SST) to generate an estimated RM5 billion additional revenue in six months starting July, according to Finance Ministry secretary general of Treasury Datuk Johan Mahmood Merican, noting the move is part of its strategy to strengthen fiscal resilience.
Johan added that the SST expansion — which comes into effect on July 1 — needs to strike a balance between raising revenue and lightening the cost of living burden on lower-income households, by granting exemptions for basic goods while strategically focusing on higher-end and business services.
“We need to increase our tax base because our tax-to-GDP is about 12.5%, which is among the lowest in the region. There’s certainly room to increase it for the sustainability of our expenditure,” Johan said during a panel discussion on Social Safety Nets: Securing the Future at Bank Negara Malaysia’s Sasana Symposium 2025 on Wednesday.
“There is a need to raise revenue and certainly we have this target — where we are targeting on an annualised basis about RM10 billion to be raised on this revenue."
Johan said the revenue projection is based on modelling that considers the composition of Malaysia’s consumer price index (CPI), with most essentials such as food, utilities, and public transport excluded from the tax scope.
“We have seen some estimates — I think there was a CIMB [Securities]’s estimate — that it would have an impact on CPI of 0.25%. Our internal house estimate is slightly lower than that,” he said.
Johan added that the SST hike was targeted at segments with higher spending capacity, such as fee-based financial services, commercial construction, and discretionary imports.