KUALA LUMPUR: Domestic tax policies are adding to cost pressures for timber exporters, particularly traders who operate without manufacturing facilities.
Timber Exporters Association of Malaysia (TEAM) vice-president Leonard Chew said the 5% sales tax on sawn timber raises costs for exporters and affects Malaysia’s competitiveness in global markets.
“Manufacturers effectively pay nothing. As traders, we do not have that privilege – we have to pay a 5% levy on sawn timber simply to move the same product,” he told SunBiz.
Malaysia’s Sales and Service Tax (SST), reintroduced in 2018 to replace the Goods and Services Tax, imposes a 5% to 10% levy on various goods, including sawn timber.
Manufacturers can benefit from exemptions or claim relief under mechanisms such as Schedule C, but traders are generally required to pay the tax on sales without full input credits.
Chew said the tax creates a cascading effect across the timber supply chain, which includes activities such as logging, sawmilling, kiln drying, treatment, packaging and logistics.
Without a full input-credit system, taxes paid on certain services and inputs can become embedded in the final cost of timber products.
“As a result, costs accumulate along the supply chain, and exporters end up carrying part of that burden,” he said.
TEAM has raised the issue with government agencies, including the Royal Malaysian Customs Department and the Ministry of Finance, requesting a review of the SST on sawn timber. However, the tax remains in place.
Chew said the timing is challenging for the sector, which has already experienced several difficult years.
Timber exports have softened in recent years, amid weaker construction activity in some markets, cautious inventory management by buyers and tighter pricing conditions.
Chew said, “2023, 2024 and 2025 were also poor years. The industry has been under pressure for some time.”
Malaysia’s timber exporters are also facing intensifying competition in key markets. Furniture exports to the United States – a major destination – are seeing stronger competition from countries such as China and Vietnam following recent tariff adjustments.
“Furniture is definitely facing more competition, especially with the current tariff structure. That puts additional pressure on Malaysian exporters,” Chew said.
At the same time, external factors such as currency movements and geopolitical tensions have added to uncertainties.
The strong ringgit has narrowed exporters’ margins, while instability in parts of the Middle East has contributed to higher freight costs, insurance premiums and shipping uncertainties.
“The ringgit strengthened too fast. It is good to see a stronger currency, but when it moves too quickly, exporters struggle to adjust their pricing, which can lead to reduced competitiveness in international markets,” Chew said.
Despite the challenges, he said, there are signs of cautious optimism in 2026, supported by steady demand and growing interest in higher-value timber products. “There is still confidence in the market. People are buying, and traders still want to do business.”
Demand is gradually shifting towards value-added and sustainably sourced timber products, particularly those with clear traceability and certification, Chew noted.
Most Malaysian exporters supplying the EU market are already prepared to comply with the European Union Deforestation Regulation, he added.
Looking ahead, TEAM expects gradual stabilisation in 2026, supported by demand for certified and traceable timber products and continued improvements in operational efficiency.
“The Malaysian timber and timber products sector remains resilient. However, local policies should be reviewed to ensure the industry remains competitive, particularly in relation to international market trends and sustainability standards that affect timber exports,“ Chew said.
