Written by Jonah Poh

With all the debate going on about the differences between Sales and Services Tax (SST) and Goods and Services Tax (GST), you’re actually a little confused, aren’t you? Following the abolishment of GST (technically, it was set to 0%) after the new government took over in May, and a “tax holiday” before SST is formally implemented in September, here are some facts and figures to help you understand how the new tax system works. Although having some similar components, these two taxes affect the economy and general public in a very different way.

To start off, let’s list down how SST and GST are essentially different:

Sales & Service Tax (SST):

  1. Composed of two different entities: Sales Tax and Service Tax (addressed as Sales & Service Tax as a whole).
    1. Sales Tax: A single stage tax stage implied on importers and manufacturers. Rates varying from 5% to 10% are collected, while there is no credit mechanism due to the tax being implied at one out of three stages only.
    2. Service Tax: Also a single stage tax which is run at a solid rate of 6% on services within the scope of services eligible for tax. There is also no credit mechanism for this tax.
  2. The possibility of paying tax twice: although it is theoretically a rare occurrence for the two types of taxes to crossover, depending on the good and/or service you have your eyes on, you may be more than likely to be subject to crossover tax with the total percentage either exceeding 16% or not.
  3. It has been in existence since 1970, and replaced by GST in 2015.

Goods & Services Tax (GST):

  1. A single-rate tax of 6% collected at every stage of the supply chain. Taking for example the three main stages in the supply chain: the raw materials supplier, the manufacturer, and then retailer, the tax is imposed on all stages as a product is made.
  2. The confusion which arises is that you may think the tax accumulates exponentially down the chain, however businesses are allowed to offset this accumulation, avoiding more than one instance of tax.

Still feeling lost? The diagrams below illustrates an example of how SST and GST affect the price of a single product (“Product A”) through the production and retail process.

Product A with SST

Product A with GST

As you can see, the end consumer pays less for the same item with SST, compared to GST. Of course, some items may see minimal or even no change in the end price, but many items will be cheaper when SST is implemented than when GST was in force.

Moving into more recent matters, SST is currently being reworked as proposals are being offered in the process of its reintroduction in an attempt to put Malaysia back on its tracks. Among the endless list of proposals awaiting to be moderated, here are some that we think you should really pay attention to!

#1 Similar to GST, SST is planned to have essential daily life items exempt from Sales tax component, specified in a 292-page list (long, right?) ranging from fresh meat to factory ships and orthopaedic appliances. In contrast to this, it has been suggested to include hotels, homestay operators on top of Pay-TV, telecommunication, insurance and takaful service providers to be subject to a 6% tax rate. In other words, previously GST-exempt services return indifferent from before with the same tax rate.

#2 Professional services ranging from such as accounting to engineering along with restaurant operators such as hawkers will see no change in the impact that SST has compared to GST. This is only applicable to individuals and businesses making more than RM500,000 annually, and newer businesses alongside decades-old traditional ones are in for a fortunate twist of fate.

#3 The agenda of the new implementation is meant to cover a narrower scope, taking into consideration the less well-off families and struggling businesses while making the whole process much simpler, whereas for GST there were still businesses that could not comply with the new system and had consequently shutdown. However, taking a closer look at the early form of the reimplementation, there exists the inevitable loopholes present within the system where smaller businesses can use opportunities created by the yearly threshold to avoid taxation, while market giants may take advantage of SST by raising prices as the retailer stage is not affected by the system.

In a nutshell, both taxes serve the function of providing “income” to the country. However, GST – while lower at 6% – affects (almost) every step of the buy-sell process; on the other hand, SST – which is higher at 10% – is only implemented at the manufacturing step, which will help lower the end-cost to consumers for most items. Regardless of which tax is implemented, one thing’s for sure – always be a smart consumer and spend your money wisely!