The Reintroduction of the Sales and Service Tax
By KC Chia, KC Chia & Noor
‘…to hope, till Hope creates from its own wreck the thing it contemplates...’ (Percy Bysshe Shelley from ‘Prometheus Unbound’)
The existing multi-stage, broadbased goods and service tax (GST) regime which was implemented on 1 May 2015 has been repealed by the new Malaysian Government and replaced by a single-stage sales tax and service tax (collectively, ‘SST’). The new acts were gazetted and slated to be enforced on 1 September 2018. This dynamic turn has served as a timely wake-up call for all businesses to review their business operations.
The sales tax is a single-stage tax charged and levied on all taxable goods that are manufactured in or imported into Malaysia and sold, used or disposed of by a registered manufacturer to a person other than any person who is exempted under the Sales Tax (Goods Exempted from Sales Tax) Order.
The sales tax is an ad valorem tax and its applicable rates are determined based on the tariff classification of the goods. Most goods attract a tax rate in the range of 5% to 10%, although fruits, certain food stuffs, cigarettes and tobacco, liquor and alcoholic drinks are set at the 5% rate. Some categories are specifically exempted such as tailoring, installation incorporation of goods into building, goldsmiths, jewellers and opticians. However, petroleum products are separately charged at their own rates.
The service tax is a form of indirect tax levied and charged on any provision of taxable services made in the course or furtherance of business nature by a taxable person in Malaysia.
Taxable services include Hotels, Insurance, Service of food and beverage preparation, Clubs, Gaming, Telecommunication, Pay-TV, Forwarding agents, Legal, Accounting, Surveying, Architectural, Valuer, Engineering, Employment agency, Security, Management services, Parking, Motor vehicle service or repairs, Courier, Hire and drive car, Advertising, Domestic flight except Rural Air Services, Credit or charge card, IT services and Electricity.
The rate of service tax is 6% except for charge or credit cards, which charges RM 25 annually for principal and supplementary cards.
Salient Features of SST
Threshold – The threshold to be registered as a taxable person is a person who manufactures taxable goods or provides taxable services whose sales value has exceeded RM 500,000 (except RM 1.5 million for the food and beverage sector) for a period of 12 months.
Registration and Final GST Return – Once the GST Act 2014 is repealed, the existing GST registered persons will automatically become the registered persons for whom no application whatsoever is required. However, they have to submit their Final GST returns within 120 days of the date of commencement of SST.
GST registered persons who have fulfilled the required criteria but are not registered by 1 September 2018 have to apply for SST registration through the MySST system within 30 days of the date of commencement. Registration is automatically approved within 24 hours for a GST registrant. If a verification process is required, it will take a longer processing time.
Implementation and GST Closure Audit – From 1 September 2018 onwards, all registered persons have to charge SST and submit their returns accordingly, while the Customs Department will carry out the GST Closure Audit on GST registered persons.
Accounting Basis – Sales Tax returns are prepared on an accrual basis. Sales tax has to be accounted for when the goods are sold, disposed or first used.
Service Tax returns are prepared on a payment basis. Service Tax is required to be accounted for when the payments are received or on the day following a period of 12 months when any whole or part of the payment is not received from the date of the invoice for the taxable service provided.
The tax invoices issued shall contain the prescribed particulars and any credit notes or debit notes issued have to be accounted for, with an adjustment to be made in their SST returns.
Returns – The registered persons are required to submit their SST returns every two months (bi-monthly basis) according to their respective taxable periods. The SST returns have to be submitted at the latest by the last day of the following month after the taxable periods ended.
Bad Debts – Claim for bad debts have to be made within a six-year period from the date the taxable goods is sold or the taxable service is provided, and subject to conditions and the satisfaction of the Director General (DG) of the Customs Department. For bad debts recovered after the bad debts refund has been claimed and received, the registered person must repay the bad debts refund to the DG in his SST return.
Keeping of Records – Registered persons have to keep their SST records in Malaysia for a period of seven years. The DG’s approval is required for keeping those records overseas.
In short, both the GST and SST are a consumption tax, the main difference being that GST is imposed at every level of supply from manufacturer, wholesaler, retailer to consumer, while SST is a single stage of consumption tax imposed at the level of manufacture or import only. The input tax under the GST regime is claimable at each level of purchase or acquisition and the tax is finally borne and paid by consumers, whereas SST is imposed at the level of sales or service provided, which is generally not recoverable, and the purchaser has to absorb it as a cost to business.
The impact of the reintroduction of SST remains uncertain, but the people’s primary concern is whether it will result in the retail prices of goods spiking or falling. The answer will be largely dependent on several factors such as the range of products or services covered, the types of tax exemptions granted, the mitigation measures to be taken by the government to regularise these adverse effects, and the business strategy adopted by the businesses regarding whether to include it as a cost or ‘pass on’ to consumers.
Despite the fact that GST has been effectively adopted by over 160 countries worldwide, Malaysia is the first country in the world to retract the GST and return to the SST regime. The transition within such a relatively short time frame may require careful management. Nevertheless, the businesses need focus and resources to put their billing and accounting systems well ready in place to ensure SST compliance and a seamless transition.
Published: September 2018 l Photo: ©Leonid Andronov - stock.adobe.com