Sales and Service Tax (SST) has been implemented Malaysia to replace Goods and Service Tax (GST) since 1st September 2018. There are many questions that surfaced during this transition period. This post hope help clear some air on SST and confusion during this transitional period.
1. Q: Bakery item (e.g. cakes, egg tarts, bread) are exempted from SST, why am I still being charged SST when I buy one from some bakery shop?
A: SST is a set of two different tax – sales tax and service tax. Bakery item like cakes are exempted from Sales tax. But if the bakery shop provides dining services to their customer, such services are considered as food and beverage services, which is a taxable service under the Service Tax. If such bakeries have taxable services value that exceeds the threshold of RM1,500,000 in a 12 months period, they will be required to be Service tax registered for services they provide. Therefore, such bakeries impose a 6% service tax charge.
For bakeries that only sell bakery items, they will not be required to register under sales tax as manufacturing of bakery items itself is exempted from Sales Tax.
Such concept applies to other Sales tax exempted items (e.g. seafood) as well. When services are provided (e.g. cooking them) when you pay for an item, the restaurant may need to impose service tax on such items depending on whether the shop/restaurant’s taxable service value exceed the threshold limit or not.
2. Q: I am doing air-conditioning business, whereby I help to install, service, maintain or repair air-cons. At the same time, I do manufacture some parts or accessories for air-conditioners as well. How should I determine whether I need to register for SST?
A: SST is a 2 separate tax system – Sales tax and service tax. Air-conditioning servicing and repairing is not a taxable services under the service tax act. Therefore, you don’t have to charge service tax on such services or repairs. However, for your company’s department in manufacturing of air-conditioner’s parts and accessories, if you have a sales turnover more than RM500,000 in 12 month period, you will be required to register under the Sales Tax. But if your manufacturing department’s sales turnover does not exceed the threshold limit, you do not have to register for Sales tax.
3. Q: How exactly items and services are included as taxable items/services under SST?
A: Before answering this question, it is important to understand that SST is a 2 separate tax system – Sales tax and service tax. We shouldn’t mix them up together or treat them the same.
For taxable items under the Sales Tax Act 2018, items are taxable or not are based on exemption. Meaning, by default all manufactured items are taxable unless they are exempted from tax according to the list of exempted item provided by the Malaysia Royal Custom Department (MRCD).
For taxable services under the Service Tax Act 2018, services are taxable or not is based on inclusion criteria. Meaning, only services that are listed in the taxable service list provided by MRCD will be considered as taxable services.
After knowing whether your item or services are taxable, you will also need to check whether your turnover sales value or value of taxable services within a 12 months period exceeded their respective taxable threshold. Only those that exceeded the threshold will need to be registered under the SST and impose SST in their charges.
4. Q: I’ve registered for SST, but the Malaysia Royal Custom Department (MRCD) had recently announced changes on taxable items (e.g. seafood are now non-taxable items) and threshold limit (e.g. limit changed from RM1,000,000 to rm1,500,000 for food and beverage services). After the changes, I am not required to be registered under SST anymore. How should I do now?
A: You will need to apply to cancel your SST registration if your registered items are announced to be exempted from Sales Tax after you registered for SST. But please note that you will still need to impose SST on your item charges until your application of cancellation has been approved by the MRCD or until the effective date for the changes announced.
Same applies to cases where you (food and beverage service provider) registered under the Service Tax because you have exceeded the threshold limit of RM1,000,000. But on 28th August 2018, our Finance Minister Mr. Lim Guan Eng announced that the threshold limit for food and beverage services has been increased to RM1,500,000. Your company’s service value does not exceed the new limit. Therefore, you are no longer legally required to register. You can apply for cancellation of registration, but will need to impose Service tax on your charges until your application for deregistration is approved.
**Here is a gentle reminder on application of registration or deregistration before 30th August 2018: All pending application will be automatically approved. Therefore, if you have applied to cancel your registration before that stated date, you will not need to impose your SST charges after 1st September 2018. But if you have applied after 1st September, you will still need to charge SST until your application has been approved.
5. Q: My company charges service charge on top of our normal charges. Will this service charge be required to be considered as taxable service value under the service tax?
A: Currently, service charge itself is not included in the value of taxable service. The service tax will only be imposed on your charged prices other than the service charge.
6. Q: What is the recommended way to impose taxes on my charges (price inclusive or exclusive)? How should I state them on my receipt?
A: Although no strict rules and regulations provided by MRCD on how information should be included on receipt, it is recommended that your charges includes taxes as this may reduce confusion and conflict when communicating with your client. Nevertheless, no matter how you impose your taxes on your charges, you will need to clearly state what type of taxes (sales tax or service tax) and how much the percentage (5%, 6%, 10%) of taxes imposed in your charges.
Besides, if your company provides both Servicing and manufacturing products, you have to clearly separate each item or services and list down the taxes imposed on which item or services clearly as well. For example, your company may be SST registered for manufacturing but not for services, then you can only charge sales tax on those taxable items and not including the charge for services when calculating tax imposed on your receipt.
7. Q: Many companies claimed that they will be absorbing the sales tax. What does it mean?
A: When a company claimed that they will be absorbing the sales tax, this means that they will maintain their item prices according to any increase in their cost due to sales tax charges by the manufacture. However, absorption of sales tax depends on which stock the company is selling. If they are selling stock that is received after 1st September and they are charged a 10% sales tax on those item but they did not increase the price according to the taxes charged, they can be considered as absorbing the sales tax.
However, if they are selling stock received during GST period (before 1st September), and they claimed that they did not increase their item price according to the increase in tax charged, this is not considered as absorbing the sales tax, they are simply just selling items at the price accordingly.
8. Q: How to calculate for each group of services?
A: There are 9 groups (A-I) of services under the service tax. Group A – F will be combined to calculate the value of taxable services, and for determination whether it has exceeded the taxable threshold. Whereas, the value of taxable services in group G – I will be calculated separately. You can refer to our blog post series to know more about the groups and their calculation.
9. Q: I have started my job order (e.g. to manufacture furniture) since May (GST 6% period), and the job only completed by 4th September (after the implementation of SST). I’ve bought parts and accessories when working on the job order and I’m charged a 6% GST rate that time. How should I calculate my cost and charge my customers? I am GST registered manufacturer.
A: Since you are GST registered, for items or materials bought during GST period, you can claim back all your input tax via the standard procedure of GST return. You will also need to charge SST towards your customer as the job is only done after SST implementation period. You will need to charge either 10% or 5% (whichever is applicable according to the item) for the manufactured item if your company annual sales turnover amount exceeded the taxable threshold of RM500,000.
10. Q: My SST registration effective date is 1st September 2018. How to know when is my SST taxable period?
A: SST taxable period is 2 months by default. But the 1st taxable period for your company depends on your Financial Year End months (FYE months). If your FYE months falls on an odd month, your 1st taxable period is one month (1st to 30th September 2018), and subsequent taxable period will be 2 months as usual. If your FYE months falls on an even month, your 1st taxable period will be 2 months (1st September to 31st October 2018), and subsequent taxable period will be 2 months as usual. You also can refer to our blog to view further detail on SST taxable period.
11. Q: I have more questions on SST, who can I contact?
A: The MRCD has recently published the list of SST contact person according to states. You can refer to the list published at the MySST portal.
You can visit the links below to read more on SST related topics in TreezSoft:
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