Recently, there several national changes in Malaysia. Following our country's 61st general election, there is a change of government. Then, the GST rate was changed from 6% to 0%. In near future, GST will soon be replaced by SST. These are all about taxes in Malaysia.
What is GST?
GST stands for Goods and Service Tax and is implemented in Malaysia starting from 1st April 2015 to replace SST. GST is a value added tax imposed on goods and services sold for consumers. In effect, it provides revenue for the government. It is applied to all level of the production chain (refer to Figure 1), hence, it is often referred as multi-stage tax. In Malaysia, companies with revenue more than RM500k must be registered under GST and can claim the GST paid as an input tax. GST is a very common tax accross the globe. Malaysia is the last Asian country to implement GST.
Figure 1 shows how SST is collected in different sectors.
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Figure 1: Stages of GST
What is SST?
SST stands for Sales and Service Tax. It was implemented in Malaysia since the 1970's and was covered by two separate tax law: Sales Tax Act 1972 and Service Tax Act 1975. SST only applies on either the manufacturer's level or the consumer's level (refer to Figure 2), which also is referred as a single-stage tax. According to the announcement that our Finance Minister Mr. Lim Guan Eng at the National Tax Conference, the sales and service tax is suggested to be 10% & 6% respectively. But as the announced SST rate is a proposed rate which is still awaiting approval from the parliament. Therefore, all SST information in this blog is based on the suggested SST framework.
Figure 2 shows how SST is collected in different sectors.
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Figure 2: Stages of SST
GST vs SST
There are both advantages and disadvantages for GST and SST. Figure 3 below shows the direct comparison between the two types of taxes.
In general, SST will increase prices of certain items as its only imposed on selected items, while GST is imposed on every goods and sales. GST will increase government's revenue while the government's revenue will decrease with the implementation of SST. According to the suggested SST framework more things will be exempted from being taxed compared to GST.
Figure 3: GST vs SST
Referring to Figure 3, it is clear that GST is a more transparent, effective and organized tax system compared to SST. Hence, implementation of GST helps Malaysia government to better manage taxes in Malaysia compared to the SST while increasing our country's tax revenue. However, SST will be more "business-friendly" in terms of simplicity in daily business operation as many businesses does not need to be registered and will not be required to follow the tax rules strictly.
How will prices of goods and services fluctuate from GST to SST?
Some people argue that if GST is changed to SST, prices of items will increase, while some suggested that the prices will decrease. Well, both statements are true if our current government follows the suggested framework of SST (before GST is imposed).
Taking from the suggested framework of SST, more things will be exempted from being taxed compared to the GST framework. On the other hand, when GST is changed to SST, the tax imposed on taxable goods will increase from 6% to 10%. Hence, an increase in prices on taxable goods, while decreased in tax-exempted goods are foreseeable. (Refer to Figure 1 and 2 for detailed calculation on how each tax is collected)
Figure 4: Changes to different sectors when GST change to SST
It seems like SST does not make much reduction but more tax is collected. Nevertheless, consumers have to take note that GST applies to almost all of the goods and services in Malaysia, any company with revenue more than RM500K will need to be registered under GST. While SST only applies to manufacturers or retailers on certain industry. Hence, when GST is changed to SST, less things will be taxed. For example, withdrawals from processed food, ATM and reloads of Touch and Go cards were not subjected to SST but is subjected to GST. Figure 4 provides a picture of how different sectors may fall into different categories in SST using the suggested SST framework.
Thus, assuming that the government will using the suggested SST framework and that every sectors' profit margin remain the same, prices for most of the items will be reduced, while only some may increase due to increased tax percentage from 6% to 10% in goods supply sectors. Nonetheless, this conclusion depends highly on what are the things that will be included in the SST taxable item according to the new SST framework.
*Note: Other than tax rate and profit margin mentioned, price fluctuation after SST will also be affected by other factors like the level of goods supply chain and types of products.
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