Mof Justifies Sst On Imported Fruits Cites Sufficient Local Alternatives

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The Finance Ministry has defended its decision to impose a five percent Sales and Service Tax (SST) on imported fruits, arguing that Malaysia already produces sufficient local alternatives that remain exempt from the levy.
In an exclusive interview with Malaysiakini, Finance Ministry Treasury secretary-general Johan Mahmood Merican emphasised that basic goods such as chicken, vegetables, rice, flour, bread, and cooking oil continue to enjoy zero-percent taxation.
On the other hand, imported fruits are considered "discretionary expenditures" where consumers have viable local options.
The policy to implement the five percent SST on imported fruits has drawn criticism from some quarters, but Johan explained that locally grown produce, including bananas, pineapples, and even high-quality melons from states like Terengganu and Kedah, provides adequate alternatives for Malaysian consumers.
"We go by the type of products. Because you would accept that, even let's say, chicken. The very poor eat chicken, but even the middle class eat chicken. I also buy chicken. So in that sense, that benefit cuts across.
“But certainly for items we consider - in Malay we call it “barangan pilihan” - you know these are discretionary expenditures, so for those, there is an element of choice, because there are maybe cheaper alternatives or basic food items that are zero (percent SST).
"We felt - at least in our opinion - we felt that there was sufficient diversity of local fruits, locally grown fruits that are available in supply, that is zero percent, and we have just applied it (SST) across the board in terms of imported fruits. Because I guess, we argue, that there is an element of choice," Johan said.
Finance Ministry Treasury secretary-general Johan Mahmood MericanOn Wednesday, consumer groups warned that the five percent SST on all imported fruits could reduce access to essential nutrients, disproportionately affecting lower-income Malaysians.
Local fruits remain tax-exempt, but concerns mount over supply shortages and possible price hikes. Critics also urged the government to boost local fruit production before the tax rollout on July 1, to avoid unintended health consequences.
Besides imported fruits, a five percent sales tax will also be levied on products such as king crab, salmon, cod, truffle mushrooms, essential oils, silk fabrics, and industrial machinery.
"Our justification remains that we feel there is quite a broad supply of locally grown fruits. In fact, fruits are one of the areas the Agriculture and Food Security Ministry has been focusing on to increase our production.
"Pineapples, we do a lot more locally grown (ones) now. Even melons, we now have those high-quality grade melons grown in Terengganu and Kedah. So there are local fruits, but I accept that there are broad sections of the community that do eat imported fruits as well, but we feel that there is an element of choice there," Johan added.
Speaking on the policy framework, Johan emphasised that the government's core commitment was to avoid increasing SST on basic goods, ensuring essential items remain accessible to all income groups.
He acknowledged that whilst the system may not be perfect, the government has made its best efforts to mitigate the impact on ordinary Malaysians.
Progressive tax philosophy
Despite not using income-based exemptions, Johan maintains that the government's policy embodies the spirit of progressive taxation.
He argued that lower-income households typically spend a higher proportion of their income on basic goods, which remain untaxed, whilst higher-income households are more likely to purchase discretionary items that now face the five percent consumption tax.
Johan said that lower-income households spend a higher proportion of their income on basic goods, while this proportion decreases as household income rises.
"So we do feel that we are still embodying the spirit of a progressive tax and that what is mostly consumed at probably low income levels, those will be largely not subject to tax, but that is not to say that the middle-class, they would also benefit with some goods being at zero percent, but of course, they would also consume items that we have introduced the five percent on," he added.
The approach means that middle-class households will get two effects. They will benefit from zero-tax basic goods, and they will also face the five percent SST on discretionary purchases, creating what the government views as a balanced progressive system.
The policy represents the government's attempt to raise revenue whilst protecting the purchasing power of lower-income groups, though the effectiveness of this product-based targeting approach continues to be debated.
SST expansion threatens food security
MCA's think tank, the Institute of Strategic Analysis and Policy Research (Insap), yesterday warned that the government's decision to broaden the taxable items under the SST risks overlooking deeper vulnerabilities in Malaysia's economic structure, particularly regarding food imports and household food access.
Insap's director Woon King Chai said that for a country that imported over RM75.6 billion in food in 2022, the new taxation approach "could be a costly misstep".
Woon explained that Malaysia's reliance on food imports arises not simply from consumer choice, but from fundamental agricultural limitations.
"We simply cannot produce certain items commercially, in sufficient volume, or at all," he said.
According to the Statistics Department's supply and utilisation of agricultural commodities report, Malaysia continues to rely heavily on imports for key food such as apples (imported 236,877 tonnes), oranges (176,210 tonnes), grapes (85,267 tonnes), wheat (1.74 million tonnes), and potatoes (242,489 tonnes) in 2023.
"These are not exotic indulgences but everyday staples. Yet, under the expanded SST effective July 1, many of these items, particularly temperate fruits and imported cereals, are now subject to a five percent sales tax.
"Despite government clarification that local produce remains exempt, the expansion of the five percent tax to imported fruits and processed foods, including canned goods, sauces, spices, and dried ingredients, will have a cascading effect on the food supply chain.
“Restaurants, caterers, food manufacturers, and consumers will all feel the pinch," Woon said.
He added that the new SST regulation would not only drive up retail prices but would further expose Malaysia's vulnerable food supply chain to fiscal and inflationary pressures, especially regarding food items that Malaysia neither produces nor can feasibly cultivate. - Mkini

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