Refined SST system could create more efficient tax environment – EY

KUALA LUMPUR: A refined sales and services tax (SST) system incorporating measures to minimise tax cascading, broaden the tax base and strengthen compliance could help create a more neutral and efficient tax environment for businesses, according to EY Malaysia's Tax Managing Partner Farah Rosley.

In particular, targeted business-to-business reliefs and refinements to existing exemption mechanisms could reduce tax costs that build up within supply chains while preserving SST as a tax on final consumption.

However, she said any changes should be implemented with clear policy guidance, adequate consultation and sufficient transition time to allow businesses to adapt their systems and processes.

"Maintaining simplicity, ease of compliance, and certainty for taxpayers should remain key considerations throughout the reform process," she told Bernama in an email interview when asked about EY's wish list for 2027 Budget.

Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim is scheduled to table 2027 Budget at Parliament on Oct 9.

According to Farah, a well-designed SST framework that addresses challenges businesses currently face, including tax cascading and difficulties accessing exemptions, could help create a more balanced tax ecosystem. She said this would support the government's fiscal reform agenda while also contributing to Malaysia's long-term economic growth objectives.

On Aug 18, Anwar said the government was prepared to study a proposal to combine elements of the Goods and Services Tax (GST) with the SST to make the country's tax system more progressive.

The prime minister said Malaysia would, however, retain the SST as the national taxation system, though certain acceptable features from the GST would be considered.

Tax policies, fiscal measures for long-term development

On expectations for 2027 Budget, Farah said businesses and individuals can anticipate targeted tax policies and fiscal measures that encourage investment in strategic areas critical to Malaysia's long-term development.

This is also in line with the New Incentive Framework (NIF), which focuses on outcome-based incentives that encourage measurable economic value creation rather than investment commitments alone, she said.

Farah said that as businesses continue to adapt to a rapidly evolving digital economy, 2027 Budget may introduce or enhance tax incentives that promote the adoption of advanced technologies, including artificial intelligence (AI), automation, cloud computing, cybersecurity and data analytics. "Such measures would help businesses improve productivity, foster innovation and strengthen their competitiveness both domestically and internationally," she added.

She also noted that support for small and medium enterprises (SMEs) will be particularly important to ensure an inclusive and widespread digital transformation across the economy.

Targeted incentives expected for high-value activities

To support private sector investment, Farah expects 2027 Budget may continue to provide targeted tax incentives for strategic industries and high-value economic activities. This could include enhancements to existing investment incentives, support for research and development (R&D), innovation-driven activities and initiatives that encourage the commercialisation of new technologies, she said.

She also expects businesses to see continued efforts to strengthen tax governance, transparency and compliance through initiatives such as e-Invoicing, tax identification numbers (TINs), data matching and analytics.

"These measures can improve visibility of economic activity, narrow compliance gaps and enhance revenue collection while reducing administrative burdens and providing greater certainty for compliant taxpayers," she said.