3 STEPS TO EASE IMPACT OF RATE HIKE

THE new service tax rate of eight per cent will begin on March 1. The government raised the rate from six per cent to enhance revenue foundations and guarantee fiscal durability.

The Treasury anticipates this policy adjustment will accrue an additional RM3 billion in revenue, a move that will help close the fiscal deficit, provide more funds for better public services and infrastructure.

To alleviate any negative impact and amplify the advantages of this policy change, policymakers might contemplate these three measures:

IMPLEMENT a graduated tax relief programme to ease the transition for small and medium enterprises (SMEs). This should be in the form of temporary tax reductions or credits to SMEs, based on their annual revenue or profit margins.

It will also help them adjust to the increased operational costs without significantly raising prices for consumers. This will also encourage them to maintain or even expand their workforce, supporting employment and economic activity.

ENHANCE incentives for innovation and digital transformation. Such incentives could take the form of tax deductions, grants, or subsidised training for employees in digital skills and innovative service delivery models.

This policy will help improve productivity and service quality, offsetting the cost increases resulting from the tax hike. It would also align with Malaysia’s broader economic goals of becoming a more digitalised and innovation-driven economy.

STRENGTHEN consumer protection and price monitoring mechanisms. This could involve setting up a dedicated watchdog to monitor service prices, particularly in sectors not exempt from the tax hike, to prevent unjustified price increases.

This would help maintain consumer trust and ensure that the tax hike does not lead to a general increase in the cost of living.

In conclusion, the government’s decision to raise the service tax rate is a calculated move to bolster fiscal sustainability and fund essential national projects.

The additional RM3 billion to the public coffers will reduce fiscal deficits and enhance public services and infrastructure, but the tax hike also poses challenges and opportunities for the economy, businesses and consumers alike.

The anticipated rise in service costs and the possible impact on consumer expenditure and SMEs necessitate careful consideration and strategic policy interventions.

By implementing supportive measures such as a graduated tax relief programme for SMEs, enhanced incentives for innovation and digital transformation, and strengthening consumer protection and price monitoring mechanisms, we can mitigate adverse effects and maximise the benefits of this tax reform.

These will not only facilitate a smoother transition for all stakeholders but also ensure that Malaysia’s economic landscape remains resilient, competitive and inclusive in the face of fiscal adjustment.

DR GOH LIM THYE

Senior Lecturer, Faculty of Business and Economics, Universiti Malaya