(Kuala Lumpur, 23rd) The government is closely monitoring the current geopolitical situation and its potential effects on our country's economy, especially in the wake of the expansion of the Sales and Service Tax (SST) coverage.
Treasury Secretary-General Datuk Johan pointed out that developments in the Middle East are bringing about high uncertainties, and it is still too early to conclude what impact this may have on the domestic inflation rate and cost of living.
“I recall when the Ukraine war broke out, it was also filled with uncertainty. We couldn't know how the situation would evolve or what impact it would have on the economy.
“Initially, we thought the Russia-Ukraine war would not have much impact on us, as our trade with those two countries is not significant, but we were mistaken.
“It turned out Ukraine is a major feed supplier. Therefore, we soon saw agricultural input costs rise, which in turn affected prices.”
He said this today while attending a Concorde Club event.
Johan mentioned that with continued conflict in the Middle East, oil prices will be affected to some extent, and oil prices are one of the key factors for our inflation outlook.
He explained that oil prices have been highly volatile—at the beginning of this year, they were in the mid-$70s, last month they dropped to the low $60s, and recently have rebounded due to regional instability.
“But at least so far this year, the inflation rate has remained below 2.0%. We have seen that Maybank estimates the SST will have a 0.25% effect on the Consumer Price Index (CPI).
“Our internal estimates are also of the same magnitude. But should the situation escalate further, we will definitely need to assess its impact on economic growth.”
Johan stated that at present, the Ministry of Finance will continue to monitor developments and adjust economic strategies as necessary to maintain price stability and protect the people from sudden cost-of-living pressures.
On June 9, the government announced a targeted review of sales tax rates, and an expansion of the service tax coverage; both measures will take effect on July 1. Sales tax rates for essential goods will remain unchanged, while some goods will be subject to a 5% or 10% sales tax.
With the implementation of these adjustments, SST revenue is expected to increase by RM5 billion this year and reach RM10 billion by 2026.
Regarding RON95 fuel, Johan pointed out that the government remains committed to rationalizing fuel subsidies through targeted measures, with reforms to the RON95 fuel subsidy expected to be implemented in the second half of this year.
“The exact timing and structure will still depend on the Cabinet’s decision.”
Johan said this move is similar to earlier tiered pricing mechanism reforms made for electricity rates and diesel subsidies, in order to protect the low- and middle-income groups and to curb leakages.
Treasury Secretary-General Datuk Johan pointed out that developments in the Middle East are bringing about high uncertainties, and it is still too early to conclude what impact this may have on the domestic inflation rate and cost of living.
“I recall when the Ukraine war broke out, it was also filled with uncertainty. We couldn't know how the situation would evolve or what impact it would have on the economy.
“Initially, we thought the Russia-Ukraine war would not have much impact on us, as our trade with those two countries is not significant, but we were mistaken.
“It turned out Ukraine is a major feed supplier. Therefore, we soon saw agricultural input costs rise, which in turn affected prices.”
He said this today while attending a Concorde Club event.
Johan mentioned that with continued conflict in the Middle East, oil prices will be affected to some extent, and oil prices are one of the key factors for our inflation outlook.
He explained that oil prices have been highly volatile—at the beginning of this year, they were in the mid-$70s, last month they dropped to the low $60s, and recently have rebounded due to regional instability.
“But at least so far this year, the inflation rate has remained below 2.0%. We have seen that Maybank estimates the SST will have a 0.25% effect on the Consumer Price Index (CPI).
“Our internal estimates are also of the same magnitude. But should the situation escalate further, we will definitely need to assess its impact on economic growth.”
Johan stated that at present, the Ministry of Finance will continue to monitor developments and adjust economic strategies as necessary to maintain price stability and protect the people from sudden cost-of-living pressures.
On June 9, the government announced a targeted review of sales tax rates, and an expansion of the service tax coverage; both measures will take effect on July 1. Sales tax rates for essential goods will remain unchanged, while some goods will be subject to a 5% or 10% sales tax.
With the implementation of these adjustments, SST revenue is expected to increase by RM5 billion this year and reach RM10 billion by 2026.
Regarding RON95 fuel, Johan pointed out that the government remains committed to rationalizing fuel subsidies through targeted measures, with reforms to the RON95 fuel subsidy expected to be implemented in the second half of this year.
“The exact timing and structure will still depend on the Cabinet’s decision.”
Johan said this move is similar to earlier tiered pricing mechanism reforms made for electricity rates and diesel subsidies, in order to protect the low- and middle-income groups and to curb leakages.