Expanded SST: Here's How It'll Add RM5 Billion In Govt Revenue In Just 6 Months

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The government expects to collect an additional RM5 billion in revenue within six months from the expanded Sales and Service Tax (SST), which takes effect on 1 July 2025

According to Datuk Johan Mahmood Merican, secretary-general of Treasury at the Finance Ministry, the revised SST is a crucial component of Putrajaya's strategy to broaden the tax base and enhance fiscal sustainability, while still cushioning lower-income groups from rising living costs.

Speaking during a panel titled 'Social Safety Nets: Securing the Future at Bank Negara Malaysia's Sasana Symposium 2025', Johan said, "We need to increase our tax base because our tax-to-GDP is about 12.5%, which is among the lowest in the region. There's certainly room to increase it for the sustainability of our expenditure."

On an annualised basis, the government is targeting RM10 billion in new revenue from the SST expansion, he said, as reported by the New Straits Times.

The projection, he explained, is based on internal modelling that factors in Malaysia's consumer price index (CPI), with most essential items such as food, utilities, and public transport excluded from the tax scope.

"We have seen some estimates — I think there was a CIMB Securities estimate — that it would have an impact on CPI of 0.25%. Our internal house estimate is slightly lower than that," Johan was quoted as saying by The Edge.

He argued that the tax burden targets only those who can afford it

According to Johan, the updated SST structure is designed to target higher-spending segments, such as fee-based financial services, discretionary imports, rental and leasing services, and commercial construction. Revenue from these categories will support long-term fiscal stability without overburdening the B40 and lower M40 population.

"The tax burden is skewed towards those who can afford it," he told reporters after visiting the Royal Malaysian Customs Department yesterday, 18 June, reported FMT.

The move is part of what the Finance Ministry describes as a "progressive approach" to revenue reform, one that ensures the scope of taxation remains targeted and aligned with the government's broader equity goals.

So, what's changing under the new SST? Announced earlier this month, the revised SST structure will see:

• Zero tax on essential goods (such as basic food, electricity, and public transport).
• 5% to 10% sales tax on non-essential items.
• Expanded 6% service tax applied to:
• Commercial and industrial construction services (above RM1.5 million annually)
• Rental and leasing
• Fee-based financial services
• Private healthcare for foreigners
• Traditional and complementary medicine, and
• Allied health services, where service providers exceed the RM1.5 million threshold.

Services that directly impact Malaysians — such as public healthcare and core private medical services — will remain exempt. For more, read our detailed list.

When asked about wealth taxes, Johan acknowledged the theoretical appeal but pointed out the practical and administrative challenges in implementing them

"It's very intellectually attractive, this idea of bringing into tax wealth," he said.

"But maybe from a tax administrator's point of view, it is quite challenging."

Instead, the government has opted for a proxy wealth tax in the form of a 2% tax on dividend income exceeding RM100,000, introduced under Budget 2024.

"We don't have a wealth tax, but at least in last year's budget, we introduced a dividend tax… not very popular, but it's an attempt to tier it. It's a good proxy."

Johan said reforms must be implemented gradually and carefully, with a focus not just on raising revenue, but on preserving social cohesion and public trust.

"It's not just about collecting more revenue, but doing so in a way that maintains public confidence," he was quoted as saying by The Edge.