GST vs SST in Malaysia

Your Malaysian GST to SST guide: Know what’s happening, understand the fears, and be prepared for the change from GST to SST which the 1st stage of implementation happening with zero-rated GST this June 2018.

 

What is GST and SST

Goods and Services Tax (GST): is a tax on most products and services for domestic consumption at every level in the production process. GST can be claimed as input tax for companies with revenue above RM500k. GST was implemented in April 2015 replacing SST. GST is the most commonly used form of taxation used by 160 / 190 countries globally. GST is also known as Value Added Tax (VAT) in some other countries.

Sales and Service Tax (SST): are actually covered by 2 separate tax laws on a wide variety of goods and services at a single level implemented in 1970s. The Sales Tax Act 1972 is a single-stage tax charged typically at the manufacturer’s level. The Service Tax Act 1975 is a single-stage tax charged at the consumer’s level except at tax free zones. The sales tax was at 10% and service tax was at 6% respectively prior to being replaced by GST in 2015.

 

GST vs SST Comparison

TaxGSTSST
Tax Revenue EstimateRM45bRM20b
Tax BaseNarrowBroad
Transparency & RegulationHighLow
Tax Rate %6%6 - 10%
Tax StagesMulti stageSingle stage
Business Input Tax CreditYesNo
Business Export Tax ReliefYesPartial
Business Implementation CostHighLow

 

GST Criticism

  • GST has caused hardship on the people with cost of goods going up since implementation.
  • Middle men have taken advantage of GST to raise prices and use tax as a convenient excuse reason.
  • For businesses, GST claim back on tax is difficult, can be declined, and requires RM500k in sales before being claimable.
  • Malaysia was able to develop and collect taxes for decades without GST.
  • Some GST exempted (zero-rated) goods were not necessities but expensive items such as lobsters.
  • For dining out, GST is even charged on service charges (which was initially communicated as to be removed).

 

Political cartoonist Zunar on GST

 

SST Criticism

  • SST will cause government tax revenue to drop vs GST.
  • SST is a less progressive form of tax and most countries have moved to GST.
  • Switching back from GST to SST will cost businesses uncertainty and money (again).

 

Moving From GST to SST

vs


What’s the hoohah on GST to SST?

The cancellation of GST is a key part of the new government’s election manifesto. Public opinion is generally that GST caused prices of goods and services in Malaysia to go up without the country seeing significant benefits to the additional tax revenue collected. A key question being asked is how will the change from GST to SST affect businesses as well as consumers?

 

Key GST to SST Changes

  • GST will be at 0% effective June 1, 2018.
  • GST act repealed July 16, 2018.
  • SST to be reintroduced on September 1 2018.
  • Tax shortfall estimated at RM25b.

 

Why 0% GST instead of GST being abolished

0% GST (zero-rated) will allow a smoother and lower cost transition from GST to SST.

Business owners still have six years to claim GST input tax (until GST fully abolished).

 

GST to SST Change Impact

GST to SST Collection Shortfall to be covered by:

  • Streamlining expenditure.
  • Trimming unnecessary discretionary spending.
  • Reviewing and prioritizing major projects.
  • Revamping and restructuring revenue generating non-financial public enterprises (e.g. Petronas).

Bank Negara Malaysia (BNM) (freemalaysiatoday.com)

  • Prices expected to drop without 6% GST.
  • Important for the relevant authorities to ensure that businesses pass lower cost benefits to the public.
  • Likely impact on inflation but too early to be calculated. Rates will be revised if needed.

Property Industry (REHDA) (theedgemarkets.com)

  • Property prices expected to drop.
  • Construction materials and costs should go down.
  • GST about 2-4% of costs.

Automotive Industry (PaulTan.org)

  • Car prices revised downwards without GST (and SST until reintroduced).
  • Some car makers and distributors will remain prices and refund difference if price goes down.
  • Longer term prices may go up slightly.

Other GST to SST Impact

  • 0% GST and no SST from May 2018 until SST reintroduced on September 1, 2018.
  • Consumer products businesses (and stocks) expected to do well.
  • Cost of doing business will go down.
  • Reduced compliance cost of GST filing and penalties.
  • Potential downgrade in Malaysia’s credit rating.
  • (Short) delay in some spending until after GST zero rated.

 

What are your thoughts and queries on GST versus SST?

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5 thoughts on “GST vs SST in Malaysia

  • May 28, 2018 at 8:59 am
    Permalink

    What happens to progressive house payments via bank loan which was already inclusive of 6% GST during the purchase? Can consumer claim back the 6% of the remaining outstanding payments? E.g paid 20% progressive payment, so can we get the bank to imburse the GST for the balance 80%?

    The 0% GST would be available only from June 1st, 2018 and not retroactively. Thus reimbursement of previously paid GST is unlikely unless there’s a directive stating that specifically.

    Reply
    • May 29, 2018 at 1:48 pm
      Permalink

      House above rm1mil only kena GST. Below rm1mil tarak kena.

      It would be commercial properties and land zoned for commercial use that’s subject to GST.

      Reply
    • June 8, 2018 at 9:28 pm
      Permalink

      Residential properties were under the exempted category. There won’t be 6% included in the progress payment.

      Reply
  • May 31, 2018 at 9:32 am
    Permalink

    For this SST system, can the government tracked down the exact tax percentage that they put on the single layer? It is concluded to be at 10% rate of SST as of now. If there is no proper system to track down the exact tax being imposed, the manufacturer then can easily put the amount and claim that that is for 10% SST is that so?

    The SST tax on the manufacturer’s level should be at the prescribed 10% with records showing as such. Implementation can be challenging though. Let’s look at the announcement expected in 2 weeks time on the SST implementation for a clearer picture.

    Reply
  • June 1, 2018 at 7:02 pm
    Permalink

    We are hosting an international conference on last week of September 2018. As there is an early bird rate for registration by 1st week of July, how do we go about incorporating SST when it comes effect? Should we put an indemnity clause on the invoice stated as “all payments made on or after September 2018 will be subjected to SST” or the fee is not subject to SST at all?

    On another understanding, delegates who paid by 1st September is SST-free. But then again, the service (the conference) is only delivered in September.

    Really appreciate your council. Thank you.

    It is not fully clear yet on the SST implementation and if possible, would be good to wait for the SST implementation announcement which is expected in these 2 weeks. Based on current information available, payment for those paid up before Sep 1st, should not be required to pay SST. For payments from Sep 1st, 2018 would be subject to SST (based on implementation which is to be announced). All the best with the international conference hosting!

    Reply

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