PETALING JAYA: Despite concerns that the expanded sales and service tax (SST) could replace RON95 fuel subsidy cuts as the main driver of price hikes, economists say inflationary pressures remain subdued at this juncture.
OCBC senior Asean economist Lavanya Venkateswaran said the broader SST, implemented from July 1, has not impacted headline inflation in a “material manner”.
“There is limited evidence, at this point, to suggest that price increases from the expanded SST are being passed on to consumers.
“In fact, declining producer prices show that firms may have some room to absorb higher costs,” she told StarBiz, adding the producer price index declined for a fifth consecutive month – by 3.8% in July from negative 4.2% in June.
Last week, the government announced that the targeted RON95 petrol subsidy measure will commence on Sept 30, 2025, offering all Malaysians up to 300 litres of RON95 petrol per month at RM1.99 per litre.
With the relatively “generous” monthly quota of 300 litres, versus the average actual consumption of 150 to 200 litres per month, and a lower subsidised price of RM1.99 per litre, analysts do not expect the subsidy rollout to trigger any major upside to inflation.
Bank Muamalat Malaysia Bhd head of economics, market analysis and social finance Mohd Afzanizam Abdul Rashid said the source of inflation in the expanded SST scope would mainly come from businesses raising their prices.
“Given that consumers are not privy to businesses’ cost structures, they are in no position to dictate prices. At the most, they might shop around but in the end they will buy the goods and services that they need.
“Consumers are generally price takers.Therefore, the government’s role in monitoring and enforcing relevant laws that will prevent misconduct like hoarding, price manipulation and the existance of cartel in businesses is extremely crucial.”
Mohd Afzanizam noted the impact of the broader SST appears to be fairly manageable, judging from the latest inflation print.
KPMG Malaysia head of indirect tax Ng Sue Lynn said while consumers may see some impact from the SST, it is not likely to be significant, given the government’s targeted approach.
“For example, in sales tax, the manufacturers’ challenge is to quickly determine whether their products are taxable or not.
“If they can’t pass on the cost to the customer, then it will eat into the manufacturer’s profitability.
“However, if they pass on the sales tax to their customers, they also need to ensure that they comply with the price control and anti-profiteering legislation,” she said.
Ng said that while existing exemptions for the SST can alleviate the tax-on-tax impact, the measures could be improved by further relaxing the conditions.
Meanwhile, Centre for Market Education chief executive officer Carmelo Ferlito said the SST will not create inflation, but will initiate a process of adjustment of prices – a painful one.
Ferlito said inflation is not generated by cost increase but through government spending financed via debt, by the central bank via money printing or with too low interest rates, and by commercial banks through their loan activity.
