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Sales and Service Tax (SST) in Malaysia

The Ministry of Finance (MoF) announced that Sales and Service Tax (SST) 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, which will come into effect on 1 September 2018. Before the 6% GST (that was implemented in 2015), Malaysia levied a Sales Tax and a Service Tax. Governed by the Sales Tax Act 1972 and the Service Act 1975, the Sales Tax was a federal consumption tax imposed on a wide variety of goods while the Service Tax was levied on customers who consumed certain taxable services. Specially designated areas that include Langkawi Island, Tioman Island and Labuan Island are exempted from the Service Tax. This page will help you to understand what SST is and how it will affect us.

Service Tax

Malaysia’s Service Tax is a form of indirect tax imposed on certain prescribed goods and services in Malaysia including foods, drinks, and tobacco, or sometimes called “taxable services”. Professional and consultancy services providers, be it the professional firms or persons, like accountants, lawyers, engineers, architect, insurance companies, and so on, are subject to the service tax. However, the service tax cannot be levied on any services that are not on the list of taxable service.

Under the Service Tax Act 1975, any taxable person who runs a business of giving taxable service must apply for a license. Voluntary licensing is also available to any person (can be an individual, a firm, a society, an association, a company and every other juridical person) who is not required to be licensed if he or she:

  • provides taxable service; or
  • Will run a business of providing taxable services.

Sales Tax

The Sales Tax, a single stage tax, was levied at the import or manufacturing levels. In Malaysia, it is a mandatory requirement that all manufacturers of taxable goods are licensed under the Sales Tax Act 1972. Companies with a sales turnover of less than RM100,000 and companies with Licensed Manufacturing Warehouse (LMW) status can apply for a certificate of exemption from licensing. Under this act, licensed manufacturers are levied on their output while others (manufacturers that are not licensed or exempted from licensing) will be taxed on their inputs.

Sales and Service Tax (SST): Boon or Bane?

The government will re-introduce Sales and Services Tax (SST) to replace the existing tax system. While many people hold different views towards the government’s decision, it is important for us to understand the difference between these two tax system and its impact.

Both SST and GST are the consumption tax. The SST is a single stage of consumption tax while GST is a multi-stage of consumption tax on goods and services that were levied at every stage of the supply chain. Prior to the implementation of GST, the rates of SST stand at 10% (for sales tax) and 6% (for services tax) that charge on the final production and service only. Under the SST tax regime, the range of taxable items and exemptions is lesser if compared with the current GST’s tax regime. Under SST, everything is exempted unless it is taxable. In general, only the high-end restaurants and hotels will be charging the SST. Therefore, in most cases, the low-middle income earners are usually not impacted by the SST tax system.

Unlike SST, the 6% GST applies equally on every stage of a supply chain, from the supplier, manufacturer, whole seller and to the retailer. Under GST, everything is taxable unless exempted. However, the range of exemptions and taxable items are much wider which means that all the goods and services are subject to GST unless it’s exempted items such as essential goods, healthcare services, and public transport. On top of that, the implication of GST on the classification and valuation of exported goods are not available because all exported goods are zero-rated.

Key Takeaways:

  1. The SST is levied at the consumer end while the GST is paid by all companies.
  2. The SST is payable when consuming good while GST is payable on every transaction between companies before reaching the end consumer.
  3. The Sales Tax will only be imposed on the manufacturer or consumer level, while the Service Tax is taxed on consumers that are using tax services.
  4. The GST, which stands at a flat rate of 6%, while the SST rates vary from 5-10% to specific rates.
  5. The GST covers everyone, while the sales tax only covers manufacturers and services tax covers certain prescribed services like professional services.