KUALA LUMPUR: The sales and service tax (SST) will continue being the government’s preferred taxation system, says the Finance Ministry.
It said this was because the SST provides room for the government to set targeted taxation scopes, allowing basic services and products regularly consumed by the rakyat to be exempted.
“At the same time, the government will continue studying ways to improve the SST system through reviewing technical support from international organisations alongside engagements with stakeholders to protect and minimise any impact to the rakyat, industry and businesses,” it said in a written parliamentary reply on Wednesday (Oct 14).
The ministry was responding to a question by Datuk Seri Shahidan Kassim (PN-Arau) who sought justification on how the SST burdened the rakyat less when compared to the goods and services tax (GST).
Shahidan also asked whether there was consideration to include any GST elements within the SST system and the rationale behind it.
To this, the ministry said the SST and GST are two different taxation systems, although both are fundamentally consumption taxes.
It explained that the GST is a comprehensive taxation system that is generally imposed on all consumers of goods and services, regardless of their income levels.
“The implementation of GST in its ideal form, involving a single tax rate without zero-rated supplies, could have a regressive impact on vulnerable taxpayers, regardless of household income.
“This issue has been attempted to be addressed through the mechanism of applying a zero-rated GST to essential goods and services.
“However, this approach does not fully resolve the issue of regressive taxation,” it said.
It said this was because consumers of goods and services, comprising the majority of Malaysians and those in lower-income groups, would still have to bear GST.
“Meanwhile, the industry would not be similarly affected due to the availability of the input tax credit mechanism, which allows businesses to reclaim GST paid on their inputs,” it said.
As for the SST, the ministry said it is more targeted and aimed at ensuring the tax burden is not borne entirely by the public, while also providing industries with room to manage their operating costs and maintain business competitiveness.
“Although the SST also has regressive characteristics, its more targeted taxation structure, with sales tax rates of 0%, 5% and 10%, and service tax rates of 6% and 8%, can help mitigate these regressive effects.
“In addition, the SST has been implemented in Malaysia since the 1970s and is a long-established taxation system that is understood and accepted by industries, businesses and the public,” it said.
