Question

1. Discuss the evoultion of Malaysia tax from Sales and service tax (SST) 1.0 to GST to SST 2.0.

2. Discuss the issues and challenges of shifting from GST to SST from the perspective of Ministry of Domestic Trade and Consumer Affairs in Malaysia.

Answer 1

1. On Thursday, 17 May, the Ministry of Finance officially announced the reintroduction of the Sales and Services Tax (SST), which would replace the zero-rated Goods and Services Tax (GST).

SST 1.0 was first introduced in the 1970s – Sales Tax was implemented in 1972, and Service Tax was implemented a few years later in 1975.

The GST then replaced the SST on April 2015. Fast forward 3 years down the road to 2018, and a new version of the SST will be reintroduced in September.

The SST is replacing GST as part of a fiscal reform initiative by Malaysia’s new federal government, Pakatan Harapan, which took over in May 2018 after winning the 14th General Election.

Here are some major differences between the GST and the SST that you should know as a business owner:

• GST – All goods and services are subject to GST except: exempted supplies, zero-rated GST, relief of GST
• SST – Only goods/services that fall under the SST list are to be taxed

• GST is a multi-stage 6% Goods And Services tax that is charged and collected at every stage of the supply chain – manufacturer, wholesalers and consumers. It’s a tax on the final consumption or sale of goods and services
• SST is a single-stage Sales And Services tax that is charged at a manufacturer/importer and consumer level:
  • manufacturers/importers are charged sales tax
  • consumers are charged service tax when consuming taxable services (eg: buying a coffee)
• SST is made up of two separate taxes that apply to a narrower set of goods and services as compared to GST:
  • 6% service tax on services provided in Malaysia (with a specific rate for credit/charged card)
  • 10% sales tax, which will be charged on selected products and services

Is My Business Affected By The SST?

Actually, less businesses will be affected by the SST as compared to the GST because the SST is only a single-stage tax.

And while the GST had 472,000 registered businesses, the SST 2.0 is expected to only have less than 90,000 registered businesses.

Unlike the GST, which had different thresholds for different industries, the SST’s threshold is standardised at RM500,000 for all the industries except F&B, which has a RM1,000,000 threshold.

So good news to restaurant/cafe owners! You don’t have to charge tax if you’ve yet to hit RM1mil in total sales for the past 12 months.

Also, our accountant friends tell us that cash flow management will be better for you as the tax amount you pay to Customs is now based on payment received, unlike the GST’s invoice-based tax payment.

This means that you only pay tax for what you’ve been paid by your customer (though you do have to do invoice-based tax payment after 12 months have passed and your customer has yet to pay you – chase them!).

SALES TAX

Are you a manufacturer?

YES, I AM – You will be charged sales tax by Customs if:

• your total sales value in the past 12 months exceeds the RM500,000 registration threshold.
• Read the full guide here: ENG/BM

NO, I’M NOT – You won’t be charged sales tax by Customs

SERVICE TAX

Are you a service provider?

YES – Charge your consumers service tax if:

• your total value of taxable services provided in the past 12 months exceeds the RM500,000 (or RM1,000,000 F&B) registration threshold;
• you provide a taxable service.

NO – Don’t charge your consumers service tax

the good news is that if your business is already GST-registered, it will be automatically SST-registered by the government’s MySST system.

The government will send you (the owner of the business) an email to update you of this change.

If you haven’t receive the email, but do fulfil the SST criteria, then you need to register your business by the 30th of September 2018. And you need to start charging tax by the 1st of October 2018.

If your business is already SST-registered, you need to start charging tax from 1 September 2018 onwards.

What Do I Need To Do?

Unless you’re a manufacturer or importer, it’s simply a matter of adding service tax (if applicable) at the end of your receipt.

You also need to update your SST ID.

This system will be different compared to the GST, which had to be included in the price of an item.

Be sure that your current POS system allows you to add a 6% service tax, where applicable.

This change will be messy at first, so to ensure a smooth transition, check that your accounting and POS systems will allow you to:

• update your pricing and tax rate easily and quickly;
• keep track of the amount of service tax that needs to be paid to Customs;
• sync transactions (inclusive of service tax) with QuickBooks Online.

Issues and challenges of shifting from GST to SST from the perspective of Ministry of Domestic Trade and Consumer Affairs in Malaysia.

Although the GST Bill has been developed, its implementation has not been all smooth sailing. The idea was first mooted in 2005 but it has been postponed several times since then. The Bill which was supposed to be tabled at the Parliament end of March, 2010 has been postponed until further notice. Many opined that Malaysia is not ready for GST implementation at this stage .

The issues and challenges of GST implementation are listed below in no particular order of importance:

i. No Collective Effort Among Corporations, Individuals and the Government

GST implementation has been postponed several times since its announcement in 2005. The reason for the delay is primarily due to the lack of collaborative effort between the Government, corporations and individuals. The individuals and corporate bodies claimed that the Government proposed the GST policy without public consultation . However, prior to the announcement; the TRP tried to approach all stakeholders to seek their inputs and recommendations in developing the GST Bill. The RMC informed that the public were not cooperative in providing inputs at that time. Consequently, when the Government reintroduced the GST in late 2009, there was a public outcry.

ii. Strong Resistance from the Public

The proposed GST system provoked strong opposition from the nation. Most people are reluctant to change to the new tax system because of the misconception that GST is inflationary and have cascading effect/double taxation which will affect their livelihood. They are also worried that the Government will progressively raise the GST rate over the years after its implementation.

iii. Lack of Information on GST

Despite the RMC having organised roadshows to educate and raise awareness among the masses on GST, most are still confused about it. This is further compounded by the Government’s decision to release the details of regulations and orders after the Bill is enacted. Due to the lack of detailed information and knowledge on the duties imposed on their business operations, the masses are uncertain as to what has to be done. This, coupled with the severe negative sentiments against the implementation of GST resulted in most businesses stalling their preparations to adopt the GST.

iv. Inadequate Training/Education Programmes for the Public

In so far, the Government has not given any training to the people as they are busy campaigning and promoting the GST. Only some private organisations, namely PwC and Federation of Malaysian Manufacturers (FMM), took the initiative to provide advice and consultations to the industry players on how to prepare for GST. Clearly, comprehensive training programmes are lacking currently. The Government needs to design and carry out these programmes to assist and guide organisations in preparing for GST as it has an enterprisewide effect.

v. Information Technology (IT) and Accounting Systems

In order to take into account the GST system, organisations need to reassess their entire business processes, structures and relationships. Accounting systems have to be modified and new IT software installed for GST compliance. These changes incur costs and are therefore, liabilities to the organisations. Smaller businesses may not be able to afford such a change. Unless the Government can affirm that GST will definitely be implemented, organisations will not go full swing in tweaking their computer systems to meet the GST requirements.

vi. Effectiveness of Enforcement Measures are Questionable

In addressing inflationary pressures and curbing excessive profiteering, the Government will be introducing the Price Control and Anti-Profiteering Act and establishing the Price Monitoring Council (PMC). Under the purview of the MDTCC, the anti-profiteering legislation aims to deter traders from taking advantage of the GST to raise prices and increase profits. However, the practicality of the legislation is questionable. According to Jamaluddin (2010), the enactment of the Anti-Profiteering Act is only good on paper and based on past practices in Malaysia, effectiveness of enforcing the legislation is discouraging. The authorities have to act swiftly in response to complaints about unjustified price increases by catching and penalising unscrupulous businesses. Otherwise, without strict enforcement, profiteering activities will persist and eventually lead to inflation.

vii.  Lack of Clear GST Implementation Mechanisms

Currently, TRP at the MOF is set to look into matters pertaining to GST such as to study the general impact of GST, gather feedback from the public, plan the implementation process as well as identify and resolve operational problems of GST. However, apart from the briefing roadshows and the talk about setting up of the Anti-Profiteering Act, not much is mentioned about the approach the Government would take in helping the nation to prepare themselves for GST. Plans to train and assist the organisations and individuals were only vaguely stated. Detailed guidelines for various industries with specific time frames for each stage of implementation are not available.

viii. Insufficient Time for Preparation

Upon passing the Bill, the Government plans to give organisations an 18- month period to prepare for the necessary changes in their businesses and accounting processes. However, this period may not be sufficient for the industry to conduct the preparatory works to comply with the GST requirements. According to Dennis Lin of BDO Australia partner, it takes more than two years for corporations and individuals to accept the new tax regime. FMM president Tan Sri Mustafa Mansur also shared the same sentiment.