It has been a month since the re-introduction of the Sales and Services Tax (SST) and already good news abounds for the food and beverage industry as 7,000 restaurants and cafes with a turnover of less than RM1.5mil a year are exempt from the SST. For the consumer, this means dining out has become more affordable. The SST has also resulted in lower car prices for some car companies due to the tax exemption for Completely Knocked Down (CKD) components during assembly and house prices could likewise come down due to the tax exemption on construction materials.
But it is still early days for SST 2.0 and many aspects are still being ironed out. Smart Investor talks to Ng Sue Lynn, Executive Director of Indirect Tax Services of KPMG in Malaysia to ask her about the SST’s mechanism and impact thus far.
Note: The full list of tax exempt items, guidelines and the latest announcements are accessible at https://mysst.customs.gov.my/
Smart Investor (SI): Can you give an example of how the SST 2.0 mechanism works?
Ng Sue Lynn (NSL): SST consists of two separate taxes that is the Sales Tax and the Service Tax.
Sales Tax is a tax charged and levied on all taxable goods manufactured in Malaysia by a registered manufacturer and it is sold, used or disposed of by said manufacturer. There is also sales tax on imported goods into Malaysia. The rate of sales tax is either exempted (ie 0%), 5% or 10% depending on the HS Tariff Codes of the goods. There is a separate prescribed sales tax rate for petroleum products.
Service Tax is a tax charged and levied on any taxable services provided in Malaysia by a registered person in carrying on his business. There is no service tax on imported services whereas exported services are not subject to service tax, subject to meeting conditions. The rate of service tax is 6% except for a fixed RM25 for credit cards and charge cards.
Both Sales Tax and Service Tax are single stage taxes, meaning they are only charged once at the manufacturer or service provider level. The taxes will form the cost of the purchaser and there is no “input tax” to be claimed, unlike GST.
To illustrate, for Sales Tax, a manufacturer will charge sales tax on its taxable goods to the wholesaler and issue an invoice which shows the sales tax. The sales tax would be a cost to the wholesaler. When the wholesaler sells the same goods to the retailer, the wholesaler will not charge any sales taxes because it is not a manufacturer, hence the invoice from the wholesaler to the retailer will not show any taxes. Similarly, the retailer’s sales to the end consumer will also not attract anymore sales tax.
SI: Which are the sectors affected? Is it only for manufacturers and service providers?
NSL: From a charging perspective, only manufacturers and prescribed service providers who exceeds the prescribed threshold will need to be registered and charge the sales tax and service tax. There’s also an option to register voluntarily, subject to meeting conditions.
From a purchase perspective, any person who imports taxable goods or acquires from the registered manufacturers or registered service providers would need to pay the taxes.
SI: It has been one month since the implementation of the SST. What are the tax issues that have surfaced?
NSL: The immediate issues noted are the accessibility of the Customs’ MySST portal as well as the ambiguity in the SST treatment for certain transactions and scenarios. This is understandable given that the MySST system and the SST regime are still new, with many areas that need to be clarified. When GST was implemented in April 2015, similar teething issues also arose.
Another notable issue is the application for exemption from sales tax, which needs to be done online. As manufacturers are aware, they must get the exemption approved before they can acquire goods without sales tax. Although the system is continuously enhanced to facilitate the exemption application, the instability of the online application creates uncertainty for manufacturers to acquire tax free status, which will affect their cost, margin and pricing.
SI: During the implementation of the GST in 2015, companies spent a lot investing in new systems and software to accommodate the demands of the GST. What will happen to these systems now and which part of this system will be applied to SST 2.0?
NSL: Depending on the software, some companies may find it easier than others to cater for SST 2.0. For businesses that are not liable to register for SST, their main task is to ensure that the “switching off” of the GST function does not affect their other accounting/financial functions. However, for businesses who are liable to register for SST, ensuring that their existing system could accommodate SST 2.0 may involve some investments.
SI: Will implementing SST help reduce tax administration costs for companies in the long run?
NSL: As the SST compliance is done online, it is anticipated that the tax administration costs should not be burdensome to businesses in the long run. Furthermore, as there is no more avenue to claim input taxes from purchases, the role of checking the tax invoices of suppliers and claiming the refund promptly will no longer be required.
SI: In the long run, how will SST impact the Malaysian economy and businesses?
NSL: As with all new tax systems, it remains to be seen how it will impact the economy and businesses. However, if the tax system is run efficiently and smoothly, and the taxes collected are reinvested to develop the country, then the SST would definitely help businesses and the Malaysian economy.
SI: Can you comment on the list of SST guidelines for the various industries found at https://mysst.customs.gov.my/IndustryGuides as set by the Royal Malaysian Customs Department?
NSL: The SST guides issued by Customs are to assist businesses in understanding the SST treatment for certain industries. It is not comprehensive, but it’s a useful guide for businesses to have a general overview of the different SST treatments and the “Frequently Asked Questions” that applies to the particularly industry. Businesses should note that these guides will be updated with latest decisions and clarifications by Customs, hence periodic review of the guides are important.
Ng Sue Lynn joined KPMG in Malaysia in 2005 and advises on Malaysian tax issues. She has also assisted numerous leading overseas and locally headquartered multinationals. KPMG (www.kpmg.com/my) is a global network of professional services firms providing Audit, Tax and Advisory services operating in 154 countries and territories.