GST vs SST: Malaysians are waiting for clarity over new manufacturer-facing regime

By RJ Whitehead

- Last updated on GMT

The new government replaced the GST with an SST (sales & services tax) — a single-stage consumption tax on manufacturers and importers. ©GettyImages
The new government replaced the GST with an SST (sales & services tax) — a single-stage consumption tax on manufacturers and importers. ©GettyImages

Related tags: GST, Tax, Policy, tariff, Malaysia, South east asia

What’s in a letter? A great deal, if Malaysia is anything to go on, as the newly elected Pakatan Harapan (PH) government rolls back the hated GST sales tax system to replace it with an SST — a move which few people really understand, but everyone seems to have a view about.

The goods and services tax, which was implemented at 6% by the former Barisan Nasional (BN) government in April 2015, has been reviled by Malaysians and its abolition formed the centrepiece of the PH manifesto ahead of the May 9 elections this year.

Making good on their promise, the new government zero-rated GST from June 1 as it prepared to introduce the goods and services tax's successor, SST (sales and services tax) — a single-stage consumption tax whereby businesses cannot recover the tax paid on their purchases— which it has since revealed will be levied at a rate of 10% for goods and 6% for services.

In essence, the new sales tax will be imposed on manufacturers’ and importers’ costs, whereas the GST was imposed on the final consumer price.

Business leaders, economists and BN grandees have unanimously decried the move, claiming that GST has been tried and tested in many countries with great success. They also forecast that the treasury coffers will be forced to make up a shortfall of RM44bn (US$10.6bn) in GST collection this year.

Impact uncertain

Announcing the September implementation of the new tax last week, Finance Minister Lim Guan Eng said the government expects to fill the hole left by the GST by capitalising on rising crude oil prices and raising extra dividends from government-linked companies to the tune of RM14.4bn. The ministry has also identified a further RM10bn worth of expenditure savings, in addition to the RM21bn that SST is forecast to bring in.

Pundits and talking heads have been getting in a lather about the real implications of the tax change to businesses and consumers, though the details of the new levy are still vague.

Many experts believe that supermarket food and beverage prices will be reduced slightly — the AmBank chief economist suggests by 3%. By contrast, disgraced former prime ministers have predicted that the new tax regime will actually increase prices.

The zero-rating of GST did not have any effect on the people. With SST, the people’s burden will increase​,” said Najib Razak, who is now facing a raft of corruption charges.

Before the new tax is described in detail and the products it will effect are listed, the cost to businesses is not yet fully clear, though Lim outlined how it would work.

Robin Hood tax?

Using a can of soft drink as example, Lim said a manufacturer would pay a 10% tax (RM0.10) on the RM1 it would cost to manufacture, which it would pass on to the consumer.

Under the GST system, when the same can is sold at a 7-Eleven for RM2, a GST of RM0.12 would have been imposed, he said.

It is clear that a 6% GST at RM0.12 would be higher than a 10% SST​,” he said.

Unlike the GST, which burdens the poor proportionately more, the new SST will also be tweaked and designed to ensure that the impact on the lower income groups will be proportionately less​.”

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