Malaysia's expanded SST seen having minimal impact on inflation, markets
KUALA LUMPUR, June 13 (Xinhua) -- Malaysia's expanded Sales and Service Tax (SST), set to take effect next month, is expected to have minimal impact on inflation and a neutral effect on markets, economists said, citing exemptions for essential goods and relief measures for businesses.
The Malaysian government announced that the expanded SST, effective July 1, aims to strengthen fiscal sustainability. The revised framework includes an increase in the sales tax rate on selected imported and luxury goods, while keeping essential items zero-rated.
In addition, the scope of the existing 6 percent service tax will be broadened to cover fee-based financial services, leasing, main contractor construction services, as well as beauty, wellness, and certain private healthcare and education services.
Maybank Investment Bank estimated that the changes to the SST framework could add up to 0.25 percentage points to the inflation rate at most, while continuing its project inflation at 2 percent.
The bank emphasized that exemptions and cost pass-throughs would play a crucial role in mitigating inflationary effects.
CIMB, in a separate note on Tuesday, said the previous service tax hike in March 2024 resulted in a modest 0.1 percentage point increase in services inflation, which quickly eased, indicating limited second-round effects.
With external uncertainties, slowing gross domestic product (GDP) growth momentum, and a narrowing output gap, CIMB noted that the inflation outlook does not pose a significant hurdle to potential monetary policy easing.
Maybank said the tax changes are likely to have a neutral impact on most sectors, including consumer staples, discretionary goods, construction materials, and agriculture.
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