Expanded SST not new tax, just smarter one, says Treasury sec-gen
SHAH ALAM - The expanded sales and service tax (SST) set to take effect from July 1, 2025 is not a new tax imposed on everyday goods despite the common misconception, but a carefully considered extension of the existing tax framework.
Secretary General of Treasury Datuk Johan Mahmood Merican said SST was aimed at improving national fiscal stability without overburdening the public.
Clarifying public confusion over the SST expansion, Johan stressed that only about 3,332 new items were being added to the list of taxable goods and services.
This represented just 20 per cent more than the existing 6,297 taxable items.
"The expansion is being misunderstood as a new tax.
"But the reality is many of these items have been subject to SST all along — just not visible to consumers because the tax was absorbed at the manufacturer or supplier level," he said. Chief Secretary of Treasury Datuk Johan Mahmood Merican visiting the Customs Call Centre under the Corporate Planning Division at the Royal Malaysian Customs Department, Kuala Lumpur on Wednesday.
He added that the confusion was exacerbated by viral claims on social media suggesting that bizarre items such as seawater, human hair and bones were being taxed.
"This tax domain is technical. Yes, these terms exist in the gazette, but they refer to industrial inputs, not items meant for daily consumption," he said.
In response to claims that seawater is being taxed, Johan clarified that the items listed in the Customs gazette pertained to pharmaceutical-grade seawater, not ordinary seawater from local beaches.
Similarly, human hair was only taxed if it was imported for wig-making or industrial use, not from local barbershops.
"Table salt that Malaysians use every day remains tax-free. Only certain premium or industrial salts are taxed.
"The same applies to milk, sugar, bread and other essentials — all remain zero-rated," he said.
He added that while optional dairy products like yoghurt and butter were taxed at five per cent. This, he said has been in place under the previous SST framework.
He said these were not new additions adding that consumers may just now be realising it due to the public attention. Chief Secretary of Treasury Datuk Johan Mahmood Merican during his visit to the Customs Call Centre under the Corporate Planning Division at the Royal Malaysian Customs Department, Kuala Lumpur on Wednesday.
While some economists and business groups advocate a return to the goods and services tax (GST) due to its comprehensiveness and higher potential revenue, Johan said SST was a more progressive and balanced approach at this time.
"If we reinstated GST, it would generate over RM20 billion annually.
"But SST expansion is projected to bring in around RM10 billion for a full year — less than half of GST," he said.
He added that GST, by design, passed the full tax burden to the end-user consumer, making it favourable for businesses but more costly for everyday Malaysians.
As such, he said the government should widen the revenue base without disproportionately impacting the people or the economy instead.
Items newly taxed under the SST included imported fruits and premium seafood such as salmon, cod, lobster and king crab, which will now carry a five per cent tax.
These goods, by default, were considered non-essential and as seen in the country's current economic landscape, alternatives existed.
"For instance, local fruits remain zero-rated and there's an opportunity here to stimulate local production.
"In cases where local supply is insufficient, such as coconuts, imported versions are still tax-free," he said.
He dismissed rumours that common seafood like mackerel or tuna would be taxed, further affirming that basic seafood items — prawns, squid, mackerel — all remained zero-rated.
Beyond the horizon, Johan assured that the SST expansion will not significantly affect inflation, with the impact estimated at around 0.25 per cent — in line with government projections.
"These figures are based on detailed modelling. The idea is to raise essential revenue while ensuring affordability," he said.
The additional revenue will in turn support critical government programmes, including Sumbangan Asas Rahmah (SARA) which provided RM100 monthly to over five million Malaysians.
Despite an overall positive outlook thus far, one area of concern has been the inclusion of rental and logistics services under SST, which some feared could increase consumer prices.
To clear any lingering doubts, Johan said rental services were only taxed for businesses earning over RM500,000 annually, thereby exempting small traders. Chief Secretary of Treasury Datuk Johan Mahmood Merican during an interview with Sinar.
Business-to-business exemptions were in place to avoid double taxation, such as between shopping malls and anchor tenants.
"For example, if a mall rents to a department store, that transaction is taxed. But smaller kiosks operating under the department store will not face an additional tax," he said.
Summing up the rationale behind the expanded SST, Johan said the government has adopted a "targeted, progressive" tax strategy that supported national fiscal policy while protecting lower-income households.
"The idea is not to burden the people but to empower the government to fund better public services.
"We must be realistic about our country's fiscal needs. But at the same time, we are ensuring basic needs are protected and that choices exist for consumers to avoid any additional cost," he said.
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