Malaysia’s tax system has undergone significant changes over the years, with one of the most impactful transitions being the shift from the Goods and Services Tax (GST) to the Sales and Services Tax (SST). With the government’s latest announcement on March 1, 2024, raising the service tax from 6% to 8% for most services, this marks a pivotal update in the SST regime. This change reflects the government’s strategy to boost revenue while maintaining a balance for consumers and businesses. As companies continue to adapt to these shifts, understanding GST vs SST becomes crucial—especially in the context of Malaysia's mandatory e-invoicing rollout by August 2024. This blog will explore the key distinctions between GST and SST, their business impacts, and how they align with the country's evolving regulatory and economic environment, with a special focus on the role of e-invoicing.
With the new service tax rates and the phased implementation of e-invoicing Malaysia, businesses must stay informed and adapt quickly to ensure compliance and operational efficiency in the changing tax landscape.
What Are GST and SST in Malaysia?
Goods and Services Tax (GST) in Malaysia was a multi-stage tax introduced in April 2015. It was designed to be set at every supply chain step, from production to distribution, ensuring comprehensive tax collection. The GST Malaysia system aimed to enlarge the tax base, grow government revenue, and simplify tax processes.
Conversely, the Sales and Services Tax (SST), brought back in September 2018, is a single-stage tax applied at the point of sale or service. SST in Malaysia contains two components: the sales tax, imposed on manufacturing or importation of goods, and the service tax, imposed on specific services. The shift from GST to SST was driven mainly by minimizing consumer tax burden and simplifying business tax compliance.
GST vs SST Malaysia
Understanding the differences between GST and SST is essential for businesses navigating Malaysia’s tax regime. Here’s a breakdown of the key distinctions:
Feature | Price | Availability |
|---|---|---|
Tax Base | Broad tax base covering most goods and services | Narrow tax base on specific goods and services |
Indexing | Eliminated cascading and compounding effects | Reintroduces cascading effect, potentially increasing costs |
Exports | Zero-rated, eligible to claim input tax credits | No complete relief for exports |
Integration | Multi-stage tax addresses transfer pricing and vertical integration issues | Single-stage tax, does not address these issues |
Classification | Minimal classification issues | More classification challenges |
Productivity | Potential for higher tax productivity | Declining productivity over time |
Goods | 6% | 5% or 10% (depending on goods category) |
Services | 6% (except for zero-rated services) | 6% or 8% (depending on service category) |
Exports | 0% (zero-rated) | No specific relief for exports |
- Public Dissatisfaction with GST: One of the critical drivers for the reintroduction of SST in 2018 was the overall perception that GST increased the cost of goods and services without providing clear benefits. This dissatisfaction was mainly evident in the complicated refund processes under GST, which created burdens for businesses and significantly smaller enterprises below the SST threshold. This remains a valid point in discussions about Malaysia’s tax policies today.
- Simplification of Compliance: SST, compared to GST, was reintroduced as a simpler alternative with fewer compliance requirements. This decision aimed to reduce the administrative burden on businesses. This remains true, especially given the narrower tax base under SST, which limits its application to specific goods and services, making it easier for businesses to manage their tax obligations.
- Economic Impact: The reintroduction of SST led to a reduction in government revenue, with estimates suggesting a decline of around RM 25 billion compared to GST. However, SST was seen as a move to alleviate consumers' cost of living. Despite this, the cascading effect of SST, which can lead to increased costs in some instances due to tax layering, is still a concern.
Administration of GST and SST
The administration of GST and SST also differs significantly:
Feature | GST | SST |
|---|---|---|
Administration | Administered by the Royal Malaysian Customs Department, requiring businesses to be registered and adhere to stringent reporting requirements | Administered by the Royal Malaysian Customs Department, but with less cumbersome reporting requirements |
Compliance | Complex documentation and regular filings | Simplified documentation, less frequent filings |
Impact on Businesses | High compliance costs, especially for SMEs | Reduced compliance burden, particularly beneficial for SMEs |
Which System Is Better for Malaysia?
Comparing GST with SST and concluding who is better for Malaysia depends on various factors, including economic conditions, government revenue needs, and public opinion.
GST: The broader tax base of GST provided the government with a stable revenue stream, which could have been utilised for national development projects. Its capacity to eliminate the cascading effect also meant that it was potentially less inflationary than SST.
SST: SST, on the other hand, aligns better with Malaysia’s current focus on lowering the cost of living and streamlining tax processes. While it may generate less revenue than GST, its simplicity and reduced burden on consumers and businesses make it a more preferred choice in the current economic climate.
Ultimately, the choice between GST and SST reflects a balance between revenue collection goals and the need to foster a conducive business environment. As Malaysia continues to evolve its tax system, e-invoicing will play an important role in ensuring compliance and efficiency in both regimes.
The Role of E-Invoicing in Malaysia’s Tax System
E-invoicing is becoming an important part of tax administration in Malaysia, particularly as businesses and the government look to simplify tax processes. Whether under GST or SST, e-invoicing gives several benefits:
Efficiency: E-invoicing automates the invoicing process, minimizing manual errors and speeding up transaction times.
Compliance: E-invoicing systems can be integrated with tax reporting software, ensuring that all invoices comply with the current tax regime, whether GST or SST.
Transparency: E-invoicing enhances transaction transparency, making monitoring and auditing tax compliance easier for the government.
As Malaysia continues to refine its tax policies, adopting e-invoicing will be crucial in maintaining a modern and efficient tax system.
GST and SST | FAQ's
SST (Sales and Services Tax) is a single-stage tax reintroduced in 2018, replacing GST. It comprises a 5% or 10% sales tax on goods and a 6% or 8% service tax on certain services.
Malaysia shifted to SST due to public dissatisfaction with GST’s impact on living costs. SST was seen as simpler, reducing the tax burden on consumers and businesses.
Businesses face adapting to new tax bases and compliance requirements, though SST offers simplified reporting, particularly for smaller enterprises.
E-invoicing automates the invoicing process, reducing errors and streamlining SST compliance by ensuring all invoices meet regulatory standards.
The SST threshold is RM 500,000 in annual turnover. Businesses exceeding this amount must register and comply, while smaller businesses may voluntarily register.
