1. The proposed Sales tax for goods is 10%. Will item prices increase due to increased tax rate from 6% to 10%?
How it should be: Most item price should not increased but decreased instead. This is because more items will be exempted from the proposed Sales tax Act 2018. Items like processed food, jewelry articles will be charged 6% tax rate under GST framework, but no longer being taxed under the newly proposed sales tax act. Only about 38% of items are included as taxable goods and services, while there were 60% items included in GST. Therefore, compared to GST 6%, most items should experience a reduction in price instead of increment, while some taxable goods may indeed increase in price due to the increased tax rate.
The list of exempted goods include: fruits, vegetables, chicken, fish, rice, margarine, wheat, cereals, tomato sauce, chilli sauce, coffee tea, dairy products, sardines, boats for fisherman, fertilisers and tractors for farmers.
The full list can be found in this link.
2. Materials for car manufacturing are exempted from the proposed SST. Hence, car price should reduce as well?
How it should be: No. Prices of cars will not simply reduce because of the tax exemption on the manufacturing of its car-parts. First, we have to understand how the exemption works. The exemption only applies to the manufacturing of materials and parts used for car manufacturing, but car manufacturing itself is still under the 10% sales tax coverage. This means that, sales of materials from supplier to the car manufacturer will not involve SST but the sales of car from the manufacturer to consumers will include 10% SST charge. Therefore, carprice will not be reduced but may increased instead due to the increased tax rate from GST 6% to SST 10%. (Source: MalaysiaKini)
3. Since car prices will be reduced, does it mean that second-hand car price should be reduced as well?
How it should be: Second-hand car prices, in theory, should be reduced, but its not due to changes in car prices. Instead, it is due to second-hand car dealer service is not included in the taxable service list. Under the GST framework, second-hand car dealer who exceeds RM500,000 sales per year will be required to pay a 6% tax charge according to their profit margin, whereas, in the proposed SST framework, second-hand car dealer will not be charged any sales and service tax. While other cost involved in obtaining a car (e.g. insurance) are still taxable at a same 6% tax rate, second-hand car prices should, in theory, be reduced due to no tax charges on the car dealer's profit margin.
4. The materials to build residential properties are exempted from SST, does it mean housing prices will be reduced?
How it should be: Materials to build residential properties are exempted from SST, nevertheless, the sub-contractors will still need to submit a 10% SST charge to the government. In the GST framework, all building materials are included as taxable supply, while the selling of properties itself are not taxable. Which means, the tax are imposed on the property developer increases their cost in building properties and which then is charged with higher property price to the consumer. Since in the proposed SST framework, building materials are exempted from tax, the increase in tax rate on sub-contractor to 10% have minimal impact. Therefore, the proposed SST framework should theoretically lead to a reduction on housing prices which should be reflected 3 years later. The 3 years time frame is the average time needed to build properties. (Source: Beetify)
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