FMM In The News: BORNEO POST, June 12, 2025
KUALA LUMPUR: The Federation of Malaysian Manufacturing (FMM) expresses serious concern over the impending enforcement of the expanded Sales and Service Tax (SST) scope effective July 1, 2025, as gazetted by the Government.
Under the new Sales Tax Orders, 4,806 tariff lines are now subject to five per cent tax, covering a wide range of previously exempt goods.
The expanded scope now places a direct tax burden on machinery and equipment typically classified as capital expenditure. This includes items critical to upgrading production lines, automating processes, and scaling operations.
According to FMM president Tan Sri Soh Thian Lai, the additional tax burden will be largely borne by businesses and has serious implications for operating costs, investment decisions, and long-term business sustainability.
“The imposition of sales tax on capital goods is expected to increase investment costs, potentially delaying business expansion and dampening overall investment appetite across key manufacturing and commercial sectors,” he said in a statement.
“While no penalties will be enforced for non-compliance until December 31, 2025, the July 1, 2025, implementation date leaves companies with less than three weeks to reconfigure systems, assess product classifications, apply for exemptions, and communicate pricing changes to customers.”
FMM reiterated that many newly impacted manufacturers particularly those previously not registered under SST require more time to prepare and comply.
Soh said the impact is especially acute in the service sector, where the scope of service tax has been significantly broadened to include new categories such as rental and leasing, construction services, financial services, healthcare, and education.
“FMM’s initial estimates indicate that businesses in logistics, manufacturing, and retail that rely on rented premises could face annual cost increases ranging from RM24,000 to RM60,000 per premises due to the eightper cent service tax.
“These additional costs may either be passed on to consumers or force businesses to scale back operations.”
Similarly, rising taxes on financial and logistics services, which form integral components of business operations, will cascade throughout supply chains, impacting investment decisions, export competitiveness, and overall business viability.
Soh also called on the government to provide clearer and more practical transition guidelines, particularly for manufacturers engaged in mixed supplies and service providers navigating overlapping tax thresholds.
The government must also engage more closely with stakeholders to align the rollout timeline and administrative processes with operational realities.
FMM also calls for a broader exemption list, particularly for capital expenditure items such as machinery and equipment used in production, as taxing these inputs will directly affect investment decisions, industrial upgrading, and long-term competitiveness.
In addition, FMM urges the government to reevaluate the inclusion of construction services as well as leasing and rental services, given their far-reaching cost implications across sectors. These measures will increase operational expenses and are expected to cascade through supply chains.