By Sharen Kaur - June 10, 2025
KUALA LUMPUR: The Small and Medium Enterprises Association Malaysia (SAMENTA) is calling on the government to urgently review the recently expanded Sales and Service Tax (SST) framework, warning that the current structure could significantly harm SME profitability and push up consumer prices.
The association is proposing that the SST threshold be raised from RM500,000 to RM2 million in annual turnover, ensuring that only medium and larger enterprises fall within the tax scope. It is also advocating for a complete exemption for micro and small businesses, which form the backbone of Malaysia's entrepreneurial landscape.
SAMENTA national president, Datuk William Ng, acknowledged the government's need to boost fiscal revenue but expressed concern over the timing and implementation of the expanded SST.
SMEs are already grappling with high input costs, softening consumer demand, and declining external orders, Ng said.
The situation is further complicated by the looming expiration of the United States' reciprocal tariff pause on July 8, which could erode Malaysia's export competitiveness and expose SMEs to retaliatory trade measures.
Against this backdrop, the expansion of SST without sufficient exemptions or a higher threshold for SMEs risks compounding the cost burden on businesses that are least equipped to absorb it, Ng added.
"This impact is not limited to raw material costs but extends to rent and business-to-business services that will now fall under the SST's expanded scope. These increases will almost certainly be passed on to consumers, further driving up the cost of living," he said in a statement.
SAMENTA is also calling on the Royal Malaysian Customs Department (RMCD) to immediately issue sector-specific guidelines to help SMEs understand their obligations under the expanded SST. Many businesses, Ng said, lack the resources to engage tax consultants and are at risk of accidental non-compliance, even with the grace period in place until the end of 2025.
He also urged RMCD to clarify SST application timing, especially regarding whether SST should be imposed based on the invoice date or payment collection date during the transition period. Many SMEs have already issued invoices prior to July 1, creating ambiguity around tax liability under the new regime.
"SAMENTA supports the development of a fair, progressive, and transparent tax framework that broadens the base while protecting the country's entrepreneurial assets. However, this must be done in a calibrated manner, with genuine stakeholder consultation and alignment with current economic realities," said Ng.
"While we were given a briefing on the expanded SST, we cannot consider it a consultation when it is presented as a 'fait accompli'."
Ng said that in light of heightened global uncertainties and domestic economic fragility – factors that were not as pronounced when Budget 2025 was tabled – we believe that a higher exemption threshold for SMEs is economically prudent.
Effective July 1, the revised SST framework will see a sales tax of 5 per cent or 10 per cent applied to selected non-essential goods, while the service tax of 6 per cent or 8 per cent will be extended to encompass a wider range of services. These include rental or leasing, construction, financial services, private healthcare, private education, and beauty services.
The government expects the SST expansion to yield RM5 billion in additional revenue in the short term (equivalent to 0.24 per cent of GDP), with a long-term annual target of RM10 billion (0.48 per cent of GDP).
The expanded scope is part of the government's broader initiative to strengthen the fiscal position by increasing and diversifying revenue sources. A portion of the additional revenue generated will be used to enhance public services and create greater fiscal flexibility.
The revised framework also focuses on services typically consumed by higher-income individuals or non-residents, such as certain banking services, private healthcare for foreigners, and private education with annual fees above RM60,000.
Given the targeted nature of the SST, which primarily affects non-essential goods and services consumed by higher-income groups, the impact on inflation is expected to be minimal.
According to the Ministry of Finance, the Consumer Price Index (CPI) is forecast to remain within the 2 per cent to 3.5 per cent range.
Source: https://www.nst.com.my/business/economy/2025/06/1228312/samenta-calls-higher-sst-threshold-shield-smes
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