PETALING JAYA: Selected features of the Goods and Services Tax (GST) could make the existing Sales and Services Tax (SST) more efficient, but any hybrid model must balance higher revenue with keeping consumer and business costs down, say experts.
They said GST-style mechanisms could reduce supply chain double-taxation and improve tax compliance, while exemptions and different thresholds could protect lower-income households.
However, they cautioned that there is a limit to how far SST can be modified before it resembles a full GST or value-added tax (VAT) system.
Sunway University economics professor Dr Yeah Kim Leng said a hybrid approach could draw on GST’s administrative strengths, particularly its tax-credit mechanism, which creates an audit trail and helps curb tax evasion and cascading.
Yeah said tax reform was increasingly urgent as Malaysia sought to improve revenue mobilisation and manage fiscal pressures, including deficit and debt-servicing costs.
“However, it is not easy to graft GST efficiency features onto SST, as it could lead to a confusing and administratively burdensome system for both businesses and the government,” he said, adding that enhancing SST alongside targeted digital and environmental taxes remains a “pragmatic middle path” to broaden revenue.
Tax expert Datuk Koong Lin Loong said a hybrid system was workable, particularly when GST is not returning for now.
“SST is a very old and inefficient tax mechanism,” he said, adding that GST features could make it more efficient.
Koong said that allowing businesses to track input tax against tax collected on sales would give the government greater visibility into transactions along the supply chain.
“If you have input and output tax, you will know who buys and sells. It will not have the cascading effect, and it will make tax evasion more difficult.”
He said different thresholds should be used for different goods and services to protect essential items and lower-income groups.
“You can have a higher threshold for certain products and services so they will not tax the B40, especially for necessities,” he said.
Tax consultant Datin Christine Koh agreed GST-style features could be adopted to improve SST, including broader coverage of taxable services, better business-to-business exemptions, and greater use of e-invoice data to strengthen compliance.
However, she stressed that SST remains inherently selective.
“SST remains a selective tax where the government determines what goods and services are taxable, whereas GST works from the opposite principle, where consumption is generally taxable unless specifically zero-rated or exempted.”
Koh warned that further expanding SST could drive up living and business costs, including food, utilities, public transport, and housing.
“In the longer term, Malaysia could consider returning to GST at a lower rate rather than expanding and complicating SST, with essential goods and lower-income households protected,” Koh said.
Meanwhile, the Federation of Malaysian Consumer Associations (Fomca) urged the government to proceed cautiously, calling for a thorough feasibility and impact assessment prior to introducing any hybrid tax model.
“Consumers should not be used as a testing ground for tax reform, particularly when B40, M40 and T20 households are already dealing with significant cost-of-living pressures,” said chief executive officer Dr Saravanan Thambirajah.
He also urged the government to establish price baselines and enforce strict market monitoring to prevent businesses from using tax shifts to justify price hikes.
