PETALING JAYA: While tax hikes are meant to boost national revenue, the government must clearly outline how these funds are allocated, says the Federation of Malaysian Consumers Associations (Fomca).

Fomca vice-president Datuk Indrani Thuraisingham said that with the service tax raised for certain ­sectors last year, consumers are facing higher costs for services such as repairs and logistics.

She said those services affected by the hike from 6% to 8% tax since March 1 last year include accommodation, nightclubs, karaoke centres, wellness centres, and golf courses.

“Due to this, businesses have passed on the burden of cost to consumers, leading to higher fees for building repairs, plumbing and electrical services,” she said when contacted.

She pointed to Sweden as a model, where tax revenues are reinvested into public services, such as healthcare and education.

“Consumers are more willing to pay taxes when they can see tangible benefits.”

“The government must implement strong monitoring and enforcement mechanisms to prevent businesses from taking advantage of tax hikes to unjustifiably inflate prices beyond the necessary adjustments,” Indrani said.

She also proposed a tiered tax system for the service rates to ease the financial burden of middle-income groups while ensuring luxury services contribute more.

She said Malaysia could look at those implemented in Britain and Germany to minimise the impact on essential services while targeting luxury and non-essential sectors.

Indrani said the Value-Added Tax (VAT) model in Britain applies to different tax rates depending on the nature of goods and services.

Britain imposes a standard 20% VAT but applies a reduced rate for essential services and even a zero rate for food and children’s products, making basic necessities more affordable, she added.

“A tiered system could help Malaysia by ensuring essential services remain affordable while higher taxes are imposed on luxury goods and services.

“For example, in Germany, sectors like healthcare, education and cultural institutions are exempted from tax, while hotels and tourism services benefit from lower tax rates to encourage spending and boost economic growth,” the Fomca vice-president added.