Malaysia's SST boosts tax revenue, puts pressure on businesses to share the burden

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Malaysia's SST and the tax burden

Highlights

Malaysia's SST is projected to collect RM66.99 billion in 2026, rising to RM73.34 billion in 2027, driven by the expansion of the scope of taxable services.
SST collections reached RM44.76 billion in 2024, surpassing the RM44.35 billion collected under the GST in 2017, following rate increases and the expansion of taxable sectors.
The SST's lack of an input tax credit mechanism could push up consumer prices and squeeze company margins, although market pressures may limit the extent to which costs are passed on.

This article was translated from the original. Read the original version by our correspondent here.

The future of the SST and tax revenue

As reported by The Edge Malaysia, Amir did not explain directly how the hybrid GST-SST model envisioned by the government would be structured. Instead, he emphasized that the SST framework forces taxable entities to make a commercial decision about whether to absorb the cost or pass it on to consumers.

He said this decision is made in a competitive environment, meaning some companies may choose to bear the tax to maintain price competitiveness, even if doing so puts pressure on profit margins. Debate over the hybrid system has gained traction since Prime Minister Datuk Seri Anwar Ibrahim said in August that the Ministry of Finance was conducting a study on incorporating some elements of the GST into the SST. However, the issue was not raised in Budget 2027.

The SST has also recorded a significant increase in revenue. SST collections surpassed those under the GST regime starting in 2024, when SST revenue reached RM44.76 billion, compared with RM44.35 billion collected through the GST in 2017. This increase followed the expansion of the tax scope in 2024 to include logistics, brokerage, karaoke, maintenance and repair, as well as the increase in the service tax rate to 8% for most services.

Implications for businesses and consumers

One commonly cited drawback of the SST is that it is a single-stage tax with no input tax credit mechanism. This can create a cascading effect when tax is embedded in the prices of goods or services throughout the supply chain. This could push up prices for consumers and undermine export competitiveness.

However, Amir's comments suggest that the government sees competitive market pressures as a factor that could limit the extent to which tax costs are passed on to consumers. In practice, this means some of the burden may be borne by companies through lower margins, in line with the view that the full tax burden does not necessarily fall on the people.

Revenue trends also point to a widening tax base. After rising to RM55.87 billion in 2025, SST revenue is projected to reach RM66.99 billion in 2026 and is budgeted to increase to RM73.34 billion in 2027. This jump is supported by the further expansion of taxable services to include rental and leasing, construction work, private education, fee-based financial services and private healthcare, as well as the addition of items subject to sales tax.

In our previous report on fiscal warnings following the Budget 2027, MARC Ratings highlighted the need for Malaysia to build a stronger fiscal buffer to withstand global shocks and a prolonged period of high interest rates and bond yields. The article also noted that fiscal space is increasingly constrained by high operating expenditure, and recommended broadening the tax base and improving targeted subsidies to support fiscal consolidation.

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