SST hike means being prudent

Be mindful: Employee Afiqah Radiah, 26, putting up a notice on the new SST rate of 8% which takes effect today at a karaoke centre in Petaling Jaya. — SHAARI CHEMAT/The Star

Expert: Logistics firms may raise prices to pass the extra cost to consumers

PETALING JAYA: With the hike in the Sales and Service Tax (SST) from 6% to 8%, consumers need to be even more prudent in their spending and limit unnecessary expenses.

Those most affected would be consumers who often eat out at restaurants and indulge in other types of retail spending, says economics expert Prof Dr Chung Tin Fah of HELP University.

“Although the increase in SST does not apply to items such as food and beverages, the price increase could happen when they include non-food costs like logistics into the food items,” he said.

“The rise in service tax from 6% to 8% is marginal but logistic companies, which now face a 6% tax, may raise prices to pass the extra cost to consumers,” he said.

Food and beverage, telecommunications, vehicle parking services are among those being given exemptions from the tax hike.

Previously untaxed services like karaoke outlets, delivery services, brokerage and underwriting services will now be subject to the 8% SST, while the logistics sector is imposed a 6% SST.

Chung said the SST covers only 38% of goods in the consumer price index (CPI).

“The overall impact on CPI is marginal unless profiteering occurs,” he said.

Chung said the government had to realign its tax collection to include more consumption tax due to the reduction in income tax rates for the M40 group in the 2024 Budget.

“The rationale for the increase in SST is clearly stated in the 2024 Budget where Malaysia’s tax revenue is only 11.8% of GDP compared to Singapore (12.6%) and Thailand (16.4%),” he said.

Center for Market Education (CME) chief executive officer Dr Carmelo Ferlito said the impact of the SST hike on consumer expenditure would depend on how businesses increase prices to pass on the cost to consumers.

“Each consumer will react to the price increase in a different way, which is dictated by the specific goods, if substitutes are available, their disposable income, and how important the goods are to each individual.

“For some people, holidays are not essential and therefore, they may cut on that but for others, it may be more important than other activities,” he said.

Sunway University economics professor Dr Yeah Kim Leng said the SST hike would be relatively manageable as the average family would face an estimated 0.3% increase in household expenditure.

“The service tax hike roughly translates into RM9, RM16 and RM30 monthly increase in household expenditure of the B40, M40 and T20 expenditure groups based on the Department of Statistics Malaysia 2022 Household Expenditure Survey.

“This estimate of the direct effects is based on the RM3bil additional revenue that the Ministry of Finance had indicated from the 2% percentage point rise in SST,” he said.

He added that families facing tight budgets or financial constraints might need to review non-essential or discretionary services such as gambling, leisure and entertainment.

Tax expert Datuk Koong Lin Loong said the increased service tax would not have a significant impact on people’s daily lives, only causing a less than 10% cost increase for small hawkers and vendors.

“The price increase for small vendors can be attributed to factors such as imported raw materials,” he said.

He said hotel services and banquets were not essential for daily life, so they would not be a substantial burden “unless one frequently enjoys entertainment facilities like karaoke”.

He said that for small and medium enterprises (SME), transportation costs would constitute 5% to 10% of operational costs.

“For example, a RM1,000 lorry transportation cost increase would rise by RM60, so it won’t have a significant impact on the industry.”

He suggested that the government supervise market prices to prevent businesses from taking advantage of the service tax hike to raise prices.