KAJANG: The present inefficient tax structure, specifically the Sales and Service Tax (SST), has been the main reason behind the rising costs and operational inefficiencies that burden businesses, particularly the SMEs, says Datuk Seri Dr Wee Ka Siong.

Quoting an analysis by the Institute of Strategic Analysis and Policy Research (Insap) think-tank, the MCA president said the SST tax regime posed several challenges to businesses.

“The SST has been identified as imposing a ‘tax-on-tax’ effect, where businesses are taxed on inputs that have already been taxed. This cascading impact artificially inflates consumers’ prices, reducing their purchasing power and adversely affecting businesses.

“Unlike the Goods and Services Tax (GST), the SST lacks features like adequate business reimbursements and real-time electronic filing, further complicating operational efficiency,” Dr Wee said in his keynote address during the Insap Economic Forum 2024 yesterday.

The forum was organised by Universiti Tunku Abdul Rahman (UTAR) with Tunku Abdul Rahman University of Management and Technology (TAR UMT) as co-organiser.

Dr Wee, who is also a UTAR council member, said the increased SST rates from 6% to 8% across various categories and a slew of new taxes this year further complicated business compliance and reduced consumers’ buying power, especially for the B40 group.

He said Insap’s analysis showed that the projected revenue from the new low-value goods tax (RM200mil to RM300mil) and potential high-value goods tax (RM700mil) was still expected to fall short of the average revenue generated by the previous GST system.

“Had the GST not been abolished, it would have collected RM63.5bil this year, doubling the projected SST collection of RM35.8bil.

“This suggests the GST’s broader and more efficient tax base. It is time to revisit GST and consider its re-implementation,” he said.

Following the government’s “bold move” of rationalising diesel subsidy, Dr Wee said all eyes were now on RON95 fuel.

“Is it the right time to implement fuel subsidy rationalisation given the rising trajectory of taxes, prices and the overall cost of living? The economic impact is anticipated to be significant, given the large consumer base reliant on RON95.

“Spillover effects across industries are expected, despite assurances to limit price increases. This would further diminish consumer purchasing power and affordability for consumers,” he said.

He added that if the exercise was implemented, assistance to the people should be tiered based on needs with straightforward application processes along with clear instructions.

Dr Wee also said the Employees’ Provident Fund’s Flexible Account, or Account 3, which allowed members to withdraw up to 10% of their retirement savings highlighted the people’s general financial situation.

“Just 11 days after the launch, 3.04 million applications for withdrawals totalling RM5.52bil were approved. This grew to RM6.98bil by June.

“As more members transfer funds from Account 2 to Account 3, the risk of depleting retirement savings grows, potentially leaving many without adequate funds in their later years,” he said.

In addition to the pressures of rising living costs and taxes, Dr Wee said consumers faced long-term structural issues.

“Stagnant wage growth and limited high-skilled job opportunities have diminished purchasing power and increased economic insecurity.

“From 2010 to 2022, nominal monthly wages in Malaysia’s formal sector grew just 4.1% annually from RM1,500 to RM2,424. Real wage growth was even lower at 3.1% annually.

“What’s troubling is that 56% of Malaysian workers earn below the recommended living wage of RM3,047 per month, and household savings remain low for low and semi-skilled workers,” he said.The MCA president added that Malaysia needed robust strategies to boost high-skilled job growth, especially for youth.

“Educational institutions can play a critical role by aligning programmes with industry needs, promoting innovation through research and development, and supporting entrepreneurship.

“These efforts can diversify and strengthen the job market, better meet economic demands and workforce aspirations,” he said.

Insap chairman Datuk Dr Pamela Yong said the key takeaways from the forum would be compiled and presented to the Finance Minister, adding: “We will lobby for these recommendations to be considered and incorporated into Budget 2025.”

Having advocated for a return to the GST as a more equitable and efficient system, Yong said the complexities of the current SST framework with additional taxes highlighted the need for a simpler solution.

“Malaysia urgently needs a future-ready social safety net to address the concerns of the ageing population, extend coverage to the informal sector and ensure sustainable economic development,” she said.

Also present were UTAR president Prof Datuk Dr Ewe Hong Tat, TAR UMT board of governors member Datuk Chong Sin Woon, MCA veteran Tan Sri Fong Chan Onn, Star Media Group (SMG) Bhd chairman Tan Sri Wong Foon Meng and SMG chief executive officer Chan Seng Fatt.

https://www.thestar.com.my/news/nation/2024/07/13/current-system-is-key-factor-behind-rising-business-costs-says-dr-wee