Malaysia SST: What Changes to be Expected?
It was in May this year that the Ministry of Finance in Malaysia declared the abolishment of the GST or the Goods and Services Tax. The government added that the Malaysia SST or the Sales and Services Tax will be reintroduced in its place. The nation’s tax system underwent a transition as a part of the economic reforms as was promised by Dr. Mahathir Mohamad, the country’s new Prime Minister. He had a dramatic comeback to the power by defeating the Barisan Nasional coalition. The transition from the Goods and Services Tax to Sales and Services Tax may pose some challenges for the businesses of Malaysia as well as their payroll departments.
In order to avoid misconceptions and confusions, it is imperative for the people of Malaysia to understand the working details and SST meaning. These include the process of SST registration status, payment, and returns of the SST Malaysia, as well as, some transitional measures to be taken after GST is abolished. Check them out below for your detailed information.
1. The Sales and Services Tax is a single-stage tax. The sales and service tax is imposed on taxable goods manufactured as well as sold by a person falling under the taxable bracket in Malaysia. It will be also imported on taxable goods imported into the country. Plus, as a part of the act, service tax will be levied on taxable services offered in Malaysia. However, there will be no tax on exported or imported services under the same act.
2. Sales tax will be charged at a rate of 5 percent to 10 percent. For services provided, there will be a tax of 6 percent in the country from September 1.
3. A taxable person in Malaysia is defined as a person who has manufactured taxable goods. He/she can also be a provider of a specific taxable service and enjoys an annual turnover of over MYR 500,000. Taxable people are also those who offer taxable services in fields like security, architectural, accounting, and legal, telecommunication, gaming, club, insurance, and hotel among others for further business in the country and needs to be registered or are already registered as per Malaysia’s Service Tax Act 2018.
4. The returns for the Malaysia SST should be submitted once every two months to the Royal Malaysian Customs Department or RMCD.
5. The registered people need to maintain all the relevant records for the SST submissions for up to 7 years in:
- In the hard or soft copy
- In English or Bahasa Melayu
- In Malaysia excerpt allowed by Director General or DG
6. If the services cover the GST period as well as the period of Service Tax, the apportionment of the invoicing should be done between the two periods, meaning prior to September 1 and with effect from September 1 onwards.
The finer details of Sales and Service Tax (Malaysia SST)
1. The process of registration for non-GST and GST registered people
The SST registration should be done through an online system called MySST for GST as well as non-GST registered people.
Existing registrants of GST ceased to be accountable for getting registered under the Goods and Services Tax as soon as the GST Act of 2014 was revoked. While this category of Malaysians is not needed to file an application for their deregistration, they should submit their final return within four months from the day the GST Act is being revoked. Those existing GST registrants who became accountable to be registered automatically under the new SST were communicated via a communication letter through business or personal email beginning from August 1, 2018.
How to register SST Malaysia?
The online MySST system can be used to register SST Malaysia, which is auto-approved within a day for the GST registrants. People/businesses can also check registration status from here. But when there is a requirement of a verification process, it can take some more time. Thereafter, a business can go ahead with a voluntary registration if it is producing taxable goods as well as below threshold. In case a person gets an exemption from registration, he or she can go for voluntary registration.
2. Process to submit Sales Tax returns
Registered manufacturers and persons must declare SST Malaysia returns (SST-01) every two months according to the taxable period. They may apply to the Director General for a specific taxable period (e.g. in line with the financial year end). SST return has to be submitted no later than the last day of the following month after the taxable period has ended in order to avoid any penalty (10% first 30 days period, 15% second and third 30 days period, 40% after 90 days).
SST returns have to be submitted electronically or by post to SST Processing Centre, and has to be submitted regardless of whether there is any tax to be paid or not.
3. Considerations for the transition from GST to SST
Registrants of GST are permitted to make claims for their input tax credit within four months from the day the new SST comes into effect. They were also required to declare their output tax in the final GST-03 return. Some special schemes that were part of the GST like ATMS (Approved Toll Manufacturer Scheme) and ATS (Approved Trader Scheme) are not applicable as far as the new SST is concerned. Post September 1, 2018, some audits will be conducted on the GST registered entities for closure purposes.
SST exempts the following goods and service from payment & facilities:
- Following is the list of goods exempted from sales tax Malaysia.
(i) Sales tax exemptions Malaysia on goods like chemicals, machinery, medicines, vegetables, unprocessed food, live animals etc.
- Category of persons such as Inland Clearance Depot, Local Authority, and Rulers of States
- Producer/manufacturer of certain non-taxable items with tax exemptions for acquiring components, raw materials, and packaging materials for the use in manufacturing activities,
- Manufacturers who are registered with the tax exemption for acquiring raw materials, packaging items needed for manufacturing the various taxable goods.
- Registration exemptions for the following:
Manufacturing activities of people/businesses such as jewelers, tailors, vanishing table tops, engraving, opticians, etc.
- Special areas to get special treatment
Special treatment is applicable for certain designated duty-free areas like Tioman, Langkawi, and Labuan. The treatment is also extended for special areas like joint development, licensed manufacturing warehouse, licensed warehouse, and free zone. More information about SST Treatment in Designated Area and Special Area
- Contra System
Registered people can deduct a service tax in their returns to terminate and cancel services or for other reasons such as lowering discounts or premiums.
4. Taxable services proposed for services
The RMCD or the Royal Malaysian Customs Department came up with a proposal for a list of taxable service for the purpose of service tax on August 8, 2018. Plus, the same list also constitutes of a detailed comparison between the various taxable services versus the registration thresholds between the new regime and the service tax for the earlier regime.
Breakdown of SST
Here is a summary the taxable SST Malaysia list
Services and reinstated service providers accountable for service tax:
- On all services including tobacco products, drinks, and sales of goods for accommodation providers, wellness or health centers, driving ranges, golf clubs, massage parlors, beer houses, public houses, private clubs, and nightclubs.
- On services including prepared drinks and food, sale of non-alcoholic & alcoholic drinks, and sale of tobacco products in food court operators, caterers, restaurant operators etc.
- For Broadcasting services of paid television, and telecommunications along with related services apart from offering services to any other telecommunication provider by paid TV service providers and telecommunications.
- Provision of consultancy, bookkeeping, auditing, and accounting along with other charges linked to such services and professional services for public accountants.
- Offering legal services as well as other charges related to such services with respect to shariah lawyers, solicitors, and advocates.
- Providing parking areas for motor vehicles by parking operators.
- Charge card and credit card service providers that are controlled by the Bank Negara Malaysia, a flat rate amounting to MYR25 is charged for issuing supplementary or principal card as well as for each subsequent year thereafter. This flat rate is not pertinent to charge cards and fuel cards issued in close communities like sports clubs or educational institutions.
The new regime has introduced certain new categories of taxable services and service providers:
- For gaming and betting providers:
- Allowing or conducting the manner in which card games or any other games are played by an operator in the casino
- Tournaments in games of chance or betting
- Games of chance, gaming machines, lotteries, or sweepstakes
- For distribution and transmission of electricity:
Initial 600 kWh has been exempted for electricity supplied to domestic consumers. However, electricity supplied to the domestic customers for over 600 kWh comes within the scope of a billing cycle of at least 28 days
- Airline operators that have got licenses under the aviation regulations of Malaysia:
Air transport services for domestic passengers and all other services that are connected with such services, apart from the air transport routes mentioned in the Rural Air Services Agreement as an exception
- Service providers for the information technology sector:
Different kinds of IT services with the exception of sales of good related to the services provided a well as the IT services provision outside Malaysia. According to the new order, service providers offering taxable services in Malaysia are required to be registered when their entire value of taxable services offered is more than MYR 500,000 in a year.
Misconception and facts
The biggest misconception surrounding the new SST in Malaysia is some people feel that it will lead to lower prices for products while others mean prices will go up after September 1, 2018.
The debate about the how prices will behave after the deployment of the new SST Malaysia 2018 policy that replaces the earlier GST appears to be split in two different directions (Malaysia’s GST vs SST – Knowing the Difference). While a portion of the residents of Malaysia expect that prices of goods are going to come down. However, there is another group that strongly believes otherwise.
Yet, the conclusion to this strong debate is hardly so straightforward. It depends on various factors. Some of them are listed below:
- How many entities exist between the manufacturer of the goods and the final consumer? In other words, the total number of levels that exist in the supply chain of a product.
- The kind of product or goods under consideration. For instance, food items or mobile phones may be affected in a different way as compared to automobiles.
- Tax exemptions applicable to businesses/companies. For instance, businesses with proper registration have the eligibility to reclaim Goods and Services Tax on certain items bought through tax rebates.
- The way businesses deal with the pricing by themselves. For instance, Food & Beverages outlets, which opted to continue with the service charge on the menu items although ST is removing the service, tax part.
For people who believe that the Sales and Service Tax may make prices or products come lower, the logic given is:
- GST was imposed at various points of the product’s supply chain. Such an act had made the businesses increase the prices of their products although they were able to claim back the CST cost by using tax input rebates. However, SST will be charged just at the retail and output level.
- When SST was earlier levied in Malaysia, prices of specific goods were more than the 6 percent rate under the GST. In fact, prior to 2015, the rates for SST were in between the ranges of 5 percent to as high as 25 percent based on the product category. However, supporters of the cheaper price debate argue that the new SST will affect a significantly lower number of goods as compared to the number of items that were taxed under the GST Act of Malaysia. For instance, interbank ATM withdrawals, and Touch n’ Go reloads, some of the items that were not taxable under SST were taxable under the GST when it was rolled out.
On the other hand, the argument from some quarters that the new Sales and Service Tax will make product prices may also have some credence. In case the old rates are followed, some products within the ambit of the SST may land up being costlier.
To cut this long story short, people/businesses in Malaysia may expect prices getting adjusted differently depending on the kind of service or good being paid for. As of now, there is hardly any kind of black & white result, which can be expected with the introduction of the new SST policy in Malaysia. The only thing people can now do is to wait and watch to know the long-term impact of the new tax that comes into effect from September 1. After all, only time can tell whether it will be more popular in the country than its predecessor GST or not.
Lessons to be learned from GST
GST contributed to a whopping amount of 44 billion MYR for the country. GST not only widened the tax base but also helped in ensuring proper tax compliance. So, it was successful in some ways.
Malaysian people witnessed a price fall in the oil sector immediately after the introduction of GST in 2015. Hence, some financial experts have hailed it for safeguarding the finances of the nation at a crucial juncture. However, GST was a failure from the political perspective. Since there is a new government in the country and they have taken a lot of positive steps after coming to the power, there is much optimism and positivity in the nation. So, people have to simply wait and watch to find out how the SST works out for the nation.
While Goods and Services Tax is gone now, some elements of the GST can be retained. It is not as if the GST was immensely popular universally by the country’s business community. Its administration was not perfect leading to delays from time to time. The Malaysian government had earlier declared that till the time the new SST gets introduced in the country GST will be zero-rated. The announcement had a deep significance for the people of the country. It meant that until September 1, businesses need to continue with their compliance work for the GST. But it also meant that the citizens enjoyed a 90-day tax holiday albeit, indirectly.
It was also expected that as such, businesses in the country would expect a greater consumption from the consumers who were looking for lower prices during the transition period of three months. The expectation of this lower price phenomenon was more in the retail sector, as well as, for consumer purchases made in the commercial properties and the vehicle sector. Many also expected that the country’s tourism will fare better during the zero-rated GST time period.
The new Prime Minister of the country is expected a sterner approach against corruption and may deploy anti-profiteering laws in a more stringent manner. There is a likelihood of the government having a more robust approach toward fraudulent activities. Plus, people are also expecting that leakage from the newly implemented SST will be far lower as compared to the SST that existed prior to 2015.
However, if the new SST has to be successful in the coming days, there should a lot of transparency in the customs department.
Although there could be some challenges before the new SST policy in Malaysia, experts expect that many sectors in the country will reap benefits in the long term.
Differences between GST and the newly introduced SST
It is important to understand the differences between the Goods and Services Tax (GST) and the Sales and Service Tax (SST) policies.
Defining GST in the context of Malaysia
The introduction of GST took place through the Goods and Services Tax Act 2014 and was effective from April 1, 2015. It was fixed at a standard rate of 6 percent and was charged at all the different stages of Supply Chain. But, some items were zero-rated and certain other items were exempted from GST and are collected by their suppliers from them. It is interesting to note that the Malaysian government had collected about RM44 billion through the Goods and Services Tax in 2017. There was an original target of RM38 million for the current year.
On the other hand, the Sales and Service Tax was originally launched in Malaysia through the Sales Tax Act 1972 followed by the Service Tax Act 1975. The tax was later replaced by GST with effect from April 1, 2015.
There are several differences between GST and SST with the context of the Malaysian economy.
- GST was collected at various or multiple stages as compared to SST, which will be charged at a single point from September 1, 2018.
- GST was charged at a standard rate of 6 percent in the country. Under the new Malaysian SST policy, a tax rate of 6 percent would be charged on the services provided. On the other hand, a tax of 5 to 10 percent is imposed on goods being sold.
- The GST had a much wider scope as compared to Malaysia SST. Typically, GST had a broader application as compared to the new SST. Only 544 items in Malaysia were exempted from the GST system. Though the taxes levied under the new SST for goods appeared to be more as compared to GST, there are SST exemptions given to about 5,443 items.
As Malaysia ushers into the new tax regime of SST, excitement, anticipation, and debates heat up within the country. However, Malaysians need to be patient to find out whether it will be a popular tax system or will make the prices of goods and services go up. Meanwhile, the tax system has its share of supporters and detractors both.