KUALA LUMPUR: The widening of scope for the sales and services tax (SST) is expected to create major fresh income sources for the nation, in line with worldwide patterns of taxing digital services.
Economists opined that broadening of scope and introduction of new ones under the 2025 Budget are steps in the right direction.
Universiti Putra Malaysia head of Social and Development Sciences at the Faculty of Human Ecology Assoc Prof Dr Nik Ahmad Sufian Burhan said the inclusion of luxury goods and digital services helps the SST expansion targets once under-taxed or untaxed sectors.
"Expect major contributors to this larger tax net to be digital platforms, e-commerce, and streaming services. Including luxury items guarantees that richer consumers pay a fair portion of the taxes, so relieving pressure on lower- and middle-income households by keeping exemption on basic items," he told Business Times.
He added that sectors like e-commerce, streaming, and digital advertising have been under-taxed despite their increasing economic contributions, which led to many nations taxing the fast expanding digital economy.
"By bringing its tax system into line with international standards, Malaysia's action will enable the nation to better collect income from cross-border digital transactions and services that have historically escaped taxes," he said.
Effective implementation, however, will depend on a strong regulatory framework to handle the complexity of taxing digital services - often involving multinational corporations functioning across borders.
"Ensuring compliance and reducing possible gaps will depend mostly on well defined policies, consistent application of them, and cooperation with worldwide partners," he said.
OCBC senior Asean economist Lavanya Venkateswaran said the government's decision to broaden the tax base by increasing the scope of the SST, taxing dividends by 2.0 per cent above a certain threshold, and laying the groundwork to introduce a carbon tax in specific sectors, are steps in the right direction.
"Bolder reforms such as re-introducing GST, however, remained off the table at this juncture," she said.
In the tabling of the 2025 Budget, Prime Minister Datuk Seri Anwar Ibrahim said the SST's scope will be widened to cover commercial services including fee-based services.
The widening of this scope, which will be done progressively, will come into effect from May 1, 2025.
The government will exempt essential food items from the SST. The tax remains for imported food items including salmon and avocadoes.