eKTP 80

SST
Part 1 of 4

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GST vs 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 Cons

  • 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 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).

 

SST Cons

  • 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).

 

Why is Less Tax collected with SST vs GST?

  • SST is at 10%. GST is at 6%. Why then is less tax collected at with SST vs GST?

  • At a glance, GST appears that it should lower taxes. However, sales tax only applies to certain manufactured and imported goods at the manufacturing or imported stage only. Also service tax only applies on certain services.

  • The implementation of GST also resulted in an increase of items being taxed compounded with companies facing issues claiming back input tax (or even proceeding to pass through additional costs at each level to consumers).

  • Additionally, GST is a consumer-only tax which is tax neutral for companies SST is tax-deductible for companies which lowers overall tax collected.

 

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.

  • SST to be reintroduced on September 1 2018.

  • Tax shortfall estimated at RM21b.