Retailers flag cost burden from expanded SST, seek postponement

Summary

• Retailers warn that consumers may face higher prices due to expanded SST on commercial rentals.

• The Malaysia Retail Chain Association urges the government to delay the July 1 implementation, citing rising business costs.

• Association highlights strain on margins and weaker consumer sentiment amid subsidy cuts.

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The Malaysia Retail Chain Association (MRCA) has cautioned that the expanded sales and service tax (SST) affecting commercial rental is likely to see consumers forking out more for higher price tags.

The group also urged Putrajaya to postpone implementing the eight percent SST on rental and leasing services.

The association said that while it understands the government's intention to broaden the national tax base and enhance fiscal sustainability, "considerable challenges" are foreseen for retailers, particularly those operating physical outlets.

"The additional cost burden, at a time when many businesses are already contending with rising operational expenses, including minimum wage adjustments, stamping of employee contracts, and heightened regulatory compliance, will place further pressure on margins that are already under strain.

"In the context of the supply chain from manufacturers and distributors to retailers, the increased cost of doing business is expected to translate into higher end prices for consumers," MRCA said in a statement today.

Weak consumer sentiment

It warned that retailers across the board may find it increasingly difficult to absorb such additional expenses, particularly with a weaker consumer sentiment amid expectations of gradual subsidies' removal and a lack of festivities in the coming months.

"MRCA remains committed to supporting our members in navigating these changes, and we will continue to engage the Finance Ministry and relevant agencies to ensure that policy implementation remains balanced, transparent, and conducive to the sustainable growth of the retail sector," it added.

On June 9, the government announced a targeted review of the sales tax rate and an expansion of the service tax scope, both of which will take effect from July 1.

The sales tax rate remains unchanged for essential goods, while a five or 10 percent rate will be imposed on selected items.

The scope of the service tax will be expanded to include six new services: leasing or rental, construction, finance, private healthcare, education, and beauty services.

Previously, six business groups called for the expanded SST's postponement - arguing that implementing such a broad-based tax hike amid a fragile recovery would exacerbate inflation, cripple SMEs, discourage investment, and erode consumer confidence.

The groups also said the timing, magnitude, and scope of the tax measure are "gravely misguided".

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