n March 1, Malaysia’s revised service tax came into effect, rising from six percent to eight percent. 

It triggered concerns of a possible hike in prices of goods and services, more so with its implementation coinciding with the start of the 2024/2025 school term and Ramadan, although the MADANI government under the leadership of Prime Minister Datuk Seri Anwar Ibrahim had earlier clarified the tax increase would not involve necessities such as food and beverages, and telecommunications services.   

A random survey of supermarkets and Ramadan bazaars around the Klang Valley in the past two weeks by Bernama revealed an uptick in prices but not all goods were affected.

According to Universiti Utara Malaysia School of Economics, Finance and Banking senior lecturer Dr Nur Hafizah Mohammad Ismail, the rise in prices of some goods can be attributed to the higher service tax on logistics services, the lifeline of supply chains.

“However, the increase in prices of goods and services largely depends on traders and how they choose to pass on the (logistics) costs to consumers,” she told Bernama.

In other words, it is up to the traders to decide the extent of the price increase or how much profit margin they want to achieve. This perception holds true in some cases, as observed by Bernama.



Rosli Ali, 58, a martabak seller at a Ramadan bazaar in Gombak, Selangor, has chosen to retain the price of his savoury treat at RM5 a piece, compared to others who are selling it for up to RM7.

He said despite the higher raw material costs, he has no intention of raising the price of his martabak as he wants his stall to remain the choice of customers.   

“Traders can choose whether to increase their prices or not, while customers are free to buy goods that suit their ‘pockets’.

“In my case, I’m focusing more on retaining my loyal customers, so even a small profit is enough for me,” said Rosli.

One of the shoppers at the same bazaar, who only wanted to be identified as Nurul, said the prices of most of the food items sold there were the same as last year’s.

“For example, fried items like noodles are being sold at RM5 a packet, which is the normal rate. However, rice with gravy and side dishes has become quite expensive, depending on the dishes we choose… tomato rice is priced at RM7 a packet (in some stalls) but in other stalls, they are priced at up to RM10.  

“Actually, this price increase occurred before the service tax hike. We noticed an increase in raw material prices several months ago. So, when the tax went up, we knew there would be a price hike. It's just that as consumers, we need to be prudent in our spending habits,” said the 45-year-old banking sector employee.

A visit to another Ramadan bazaar in Gombak showed food prices there did not differ much from last year. Hot meals such as fried noodles, fried kuetiau, chicken rice and fried rice are still being sold at between RM4 and RM5 a packet, while beverages of various flavours are priced at RM5 a packet.   



To recap, the Service Tax is a tax charged and levied on taxable services provided by any taxable person in Malaysia in the course and furtherance of business.

The Service Tax, and the Sales Tax, were reintroduced by the government in 2018 after the six percent Goods and Services Tax (GST), which had been in effect since April 2015, was abolished.

The prime minister announced the increase in the Service Tax from six percent to eight percent during the presentation of Budget 2024 last October, with the Ministry of Finance projecting an additional revenue of RM3 billion to the country as a result of this two percent increase.

Nur Hafizah, meanwhile, said the higher Service Tax can help boost the government’s cash flow and reduce reliance on other potentially unstable sources of income.

“This strategy can also help the government to cover its operational and development expenses without increasing its loans or debt,” she said.

She added development expenditure is crucial for the implementation of the country’s socio-economic agenda including improving the quality of services such as healthcare, transportation and communication, telecommunications and education as well as social welfare programmes that directly benefit the people.

“The higher revenue will enable the government to provide more targeted financial assistance and subsidies to the people to address economic inequality,” she explained.

Prof Dr Aimi Zulhazmi Abdul Rashid, an economic analyst from Universiti Kuala Lumpur Business School, concurred, saying he sees the Service Tax increase as rational.

“The increase is necessary to reduce (the federal) government debt. In the process of reducing the government deficit (due to debt burden), tax increases must be made with minimal impact on the people. Records show the country's debt exceeded US$255.4 billion (RM1.22 trillion) at the end of last December,” he told Bernama.

He added the government is aware the Service Tax increase will affect the people but it is working to minimise that impact by implementing various initiatives including continuing the provision of cash assistance to the rakyat. 

Among the cash assistance schemes provided by the MADANI government are Rahmah Cash Contribution which is distributed to B40 households and Early Schooling Aid, with the latest being a special incentive payment of RM2,000 for civil servants. These initiatives are aimed at easing the financial burden of people affected by the rising cost of living. 

Agreeing the government is making an effort to mitigate the impact of the Service Tax hike, Nur Hafizah said consumers must also play a role by controlling their spending.

“It cannot be denied the increase in the tax rate will impact consumers including reducing their purchasing power due to inflation. So, this is where consumers must spend their money wisely,” she said.

She also said the government should continuously monitor the Service Tax collection process to curb irregularities and leakages that can result in losses to the country.

“Enforcement of laws and tax-related audits need to be strengthened to avoid financial implications for the country. This is because the level of compliance and enforcement mechanisms are crucial factors that will help achieve the government's goal of increasing tax revenue by RM3 billion through the new Service Tax rate," she added.


Translated by Rema Nambiar




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