IT is now almost two months since the heavily debated Sales Tax and Service Tax (SST) was reintroduced in Malaysia. The new tax regime replaces the goods and services tax (GST) after just three years of its launch, and is touted as a friendlier and more painless tax system for the rakyat.
The key difference between the SST and its predecessor is that SST is a single-stage tax regime unlike the GST that is a multi-stage tax and the full tax burden is shouldered by the end consumer (rakyat). Under the new tax system, goods/services are only taxed once at the importer, manufacturer or service provider level, and no further.
For example, a manufacturer will charge sales tax on its goods to the wholesaler and this will be part of the wholesaler’s cost. However, when the wholesaler sells the same goods to the retailer, they do not charge any sales tax because they are not a manufacturer.
Under SST 2.0, a total of 6,405 items are taxable – almost half of the 11,197 items previously listed under GST but some have a higher rate of up to 10%.
A total of 793 consumer goods are taxed at 5% while 5,612 items are at 10%. Services in 25 categories are taxable at 6%.
While it is still the early days of SST 2.0, some positive impact is already being felt particularly in certain sectors like the food and beverage industry, as restaurants and cafes with a turnover of less than RM1.5mil a year are exempt from charging SST.
This has made dining out more affordable for the consumer.
The tax exemption for completely knocked down car components has also lowered car prices for some car companies.
Likewise, prices in housing and real estate is expected to become more affordable due to tax exemption on construction materials.
Implementing the switch to SST
As with any new tax system, there were several teething issues or pain points that surfaced upon implementation, with most of them being ironed out along the way.
There are still some “grey areas” where further clarification or guidance is needed; this is understandable as the system is less than two months old.
At the same time, it is quite heartening to see the government making efforts to address these uncertainties as fast as possible, knowing that they could cause unnecessary financial and administrative burden to businesses.
Nevertheless, some ambiguities remain when it comes to the determination of certain taxable services, where it can be unclear whether or not these are taxable.
Businesses have to make decisions as to whether or not they fall within the scope of taxable services, and if they do then they face the challenge of explaining this decision to their customers who have to bear the Service Tax.
If they decide that it is not taxable, then they face the challenge of bearing the penalties and fines should they be eventually caught under the Service Tax net.
In the interim, it is up to companies to make an informed assessment on their stance and ensure that they have sufficient documentation to support their decision.
As far as possible, discussions should take place between suppliers and customers to agree on a position in order to avoid unnecessary disputes once invoices are issued.
Such teething issues are inevitable with any new system, and similar issues also surfaced when the GST was first implemented in April 2015.
Businesses switching from GST to SST will definitely find the change mildly inconvenient. For businesses that are liable to register for SST, ensuring that their existing system is able to support SST 2.0 may involve some additional investments.
Meanwhile, businesses that are not liable for SST must ensure that “switching off” the GST function does not affect their other accounting/finance services.
Impact on Budget 2019 and government revenue
Finance Minister Lim Guan Eng has already cautioned ahead of the budget announcement today that Budget 2019 would be a difficult one.
Certainly, we cannot and should not expect any freebies or goodies as in the previous years while the country is in grave fiscal health.
With the SST still in its infancy, I don’t foresee any major reforms or changes. I anticipate Budget 2019 to be more of a refining of the SST to iron out any existing kinks and uncertainties.
I also hope that Budget 2019 will streamline the tax treatment of taxable goods and taxable services to ensure that they are providing equal treatment for the benefit of the rakyat.
Overall, under the SST 2.0, the government expects to collect RM21bil in 2019 as opposed to RM44bil collected under the former GST.
While this indicates a “return” of about RM23bil back to the rakyat, it is also important that the government ensures it will have sufficient and stable revenue for the country’s development.
This is where the Tax Reform Committee comes in, as it has been tasked to undertake a comprehensive review and reform of the overall tax system in the long term.
This includes minimising the tax gap, diversifying tax revenue and making the system more efficient, neutral and progressive on top of exploring ways to plug leaks.
Much of the success of the new tax regime and its long-term impact on the economy and businesses hinges on how efficiently it is implemented in the coming months.
If the SST is done right, and taxes collected are reinvested into the country’s development, then it could certainly prove to be the key to turning Malaysia’s economy around and bolstering businesses.
Datuk Johan Idris is managing partner of KPMG Malaysia.
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