New 8% SST Regime Will Kick In Tomorrow; Set To Generate RM3b In Revenue

The Ministry of Finance (MoF) has announced the details of its tax reforms, including an increase in sales and service tax (SST) from 6% to 8% effective tomorrow (March 1), which is expected to generate an additional RM3 billion in revenue.

The new rate only applies to discretionary activities and business-to-business services, allowing the public to avoid paying higher consumption taxes on essential services such as food and beverage, telecommunications, parking, and logistics.

Water bills will continue to be exempt from service tax, while electricity bills for domestic users consuming more than 600 kilowatt-hours (kWH) per month will be taxed at 8% and expected to affect 15% of electricity users.

It appears that the government has decided to apply the higher rate only to certain households, with those using less than 600 kWh per month continuing to pay no sales tax.

Users above that threshold were already affected by the elimination of the two-cent-per-kWh Imbalance Cost Pass-Through (ICPT) rebate at the beginning of the year, which was expected to raise their monthly bills by between 4.2% and 6%, or between RM12 and RM32. This will certainly impact the cost of charging an electric car at home, which has the potential to significantly raise your energy usage over the 600 kWh mark.

The 2% increase in SST RMis likely to raise the prices of cars but it will not have a major impact on the automotive industry, according to Sime Darby Bhd. The new service tax rate would undoubtedly have an effect on maintenance costs even though it would not directly affect car prices. Vehicle maintenance will become more expensive as of March 1st, as it has previously been stated that repairs and servicing do not fall under the revision's exempt categories. Remember that in this instance, the labor charges are the only ones subject to the service tax; the parts themselves are not.

Motor insurance is another area where motorists will see increases in costs. The 2% increase will undoubtedly be applied to this segment since service tax is applicable to all business-to-consumer general insurance and takaful, with the exception of medical insurance and medical takaful.