The Ministry of Finance
The Ministry of Finance (MoF) announced that Sales and Service Tax (SST) which administered by the Royal Malaysian Customs Department (RMCD) will come into effect in Malaysia on 1 September 2018. The move of scrapping the 6% GST has paved the way for the re-introduction of SST 2.0.
Before the GST was implemented, the sales and service tax (Sales and Service Tax) (SST) was the tax that was implemented by the Malaysian Government in 1972. Sales tax would be imposed on manufacturers and importers at 10%. While, service tax 6% will be imposed on food, beverages, tobacco, professional services and consultancy. SST will be charged on internet, ASTRO, movie tickets, MCD, supermarket items, KFC and etc. Special designated areas that include Langkawi Island, Tioman Island and Labuan Island are exempted from the Service Tax.
Moreover, Malaysia is a developing country, practicing a country-oriented and open market. The economic system in Malaysia in the 19th century until 1963 can be categorized into two major forms of subsistence economy and commercial economic system. The forms and economic activities they practice are influenced by the system of governance in the past. For example, ordinary people became farmers and traders while the magnates became owners of mining sites and so on.
According to Abd Aziz Awang (2010), if the percentage of tax revenue earned in Malaysia is only 19.5% in 2010. This income is very low compared to other developed countries which earn the lowest tax revenue of 26.8%. Therefore the government has taken steps to change existing tax (SST) with GST. GST should be implemented in Malaysia as it sees its need to have a positive impact on the national economy.
Furthermore, all Malaysians will face GST regardless of old or young, rich or poor but roughly, it does not matter to the rich. Most of them are from corporate groups, successful business people, or have a lot of assets and property. The people who are going to be taxed are moderates and the poor. So it’s effects their life which depends on their monthly income only. A situation occur, when there is an increase in the price of goods and the cost of living after the implementation of this GST, the original planned budget will run from the original.
When the GST Act 2014 is repealed, you are automatically ceased to be a GST registered person. You are not required to apply for deregistration. However, you are required to submit the final GST return within 120 days from the Act being repealed (by 28 December 2018). After 1 September 2018, Custom audits for GST closure purposes would be carried out on GST registered entities.
In addition, all companies in Malaysia have to declare SST return (SST-01) every 2 months (bi-monthly) according to the taxable period. The SST return has to be submitted not later than the last day of the following month after the taxable period ended. Manufacturers or Services Provider who are GST Registered Persons which have been identified and fulfilled the required criteria will be registered automatically as Registered Manufacturer under Sales Tax / Registered Services Provider under Service Tax and need to charge tax beginning 1 September 2018.
Last but not least, Malaysia’s Service Tax 2018 is a form of indirect tax imposed on any provision of taxable services made in the course or furtherance of any business by a taxable person in Malaysia. Service tax is not chargeable on imported services and exported services. Generally, the services provider is liable to be registered under the Service Tax Act 2018 when the value of taxable services provided for a period of 12 months that exceeds a threshold of RM500,000. The SST registration threshold is RM1,500,000 for Operator of restaurant, bar, snack-bar, canteen, coffee house or any place which provides food and drinks (eat-in or take-away , exclude canteen in an educational institution or operated by a religious institution or body), Caterer and Food court operator.
Sales Tax and Service Tax (“SST”) Framework – Deloitte Analysis and Views
Based on Deloitte Analysis and Views the proposed taxes are conceptually a re-introduction of the Sales Tax and Service Tax that existed prior to the introduction of GST, but with some changes in its scope and also its administrative and compliance aspects. Below is a brief conceptual overview of two proposed taxes.
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I. Sales tax is charged on taxable goods that are manufactured in or imported into, Malaysia. Manufactured goods exported would not be subject to sales tax.
II. The proposed rates of tax will 5% and 10% or a specific rate. Goods are taxable unless specifically listed as being exempt from sales tax.
III. Sales tax is a single-stage tax meaning that it is only imposed at one stage in the supply chain at the import or manufacturers level.
IV. To maintain the single-stage principle, manufacturers would be entitled to an exemption on sales tax paid on their raw materials and other input to production.
Service tax is imposed on specific prescribed services provided by a taxable person in the course or furtherance of a business in Malaysia. The proposed rate of service tax 6%. Service tax is also a single-stage tax charged once by the service provider. There are no input or exemption mechanisms available for service tax.
The following taxable services are subject to the service tax:
• Hotel (include lodging house, service apartment, homestay, Inn, rest house, boarding house)
• Insurance and Takaful
• Service of food and beverage preparation (include restaurant, cafe, catering, retail outlet, hawkers and etc)
• Club (include Night club, private club, golf club)
• Gaming (include Casino, game of chance, sweepstakes, lottery, betting)
• Management services
• Electricity & etc
3.0: DIFFERENCES BETWEEN GST AND SST IN MALAYSIA
GST DIFFERENCES SST
Broad tax base TAX BASED Narrow tax base
Valued added and multi-stages tax. CONCEPT Imposed on output stage (only one stage).
Price inclusive of GST. PRICING METHODOLOGY Price exclusive of SST, as it operates as an added on to selling price.
6% RATES Multiple rates covering different categories of goods and services.
Exports are zero-rated and registered businesses are eligible to claim input tax (tax return).
EXPORT RATES AND CLAIM INPUT TAX Input tax cannot be claimed and no relief for exports.
? Never a cost to business (input tax) available upon tax invoice received).
? Business friendly. ADVANTAGES ? Simple and straight forward.
? No refund issues to business operators.
? Focused and narrow scope.
? People friendly.
? Wide coverage and comprehensive.
? Refund is an issue of consideration for GST registration.
? GST is imposed eventually on price sold to customer despite having input tax credit, resulting in cascading prices. DISADVANTAGES ? SST is a business cost.
? Deduction is based on sales (matching principles).
Less collectible tax for government compared to SST AMOUNT TAX COLLECTION BY GOVERNMENT More collectible tax for government compared to GST
Tax productivity increases TAX PRODUCTIVITY Tax productivity declined over the years.