In many countries, we pay consumption tax when we buy goods and services from businesses, which then remits the taxes to the government. Tax revenue is used by the government to fund essential services for the community, grow the economy and enhance living environment.
In Singapore, the Goods and Services Tax (GST) is imposed on nearly all supplies of goods and services in the country as well as imported items. On the other hand, Malaysians pay the Sales Tax and Service Tax (SST), two separate taxes that apply to certain goods and services.
Both GST and SST are flat taxes so the same rates apply throughout all income groups. They are also indirect taxes generally levied on manufacturers or businesses at early stages of the supply chain that are then passed on to consumers as part of the price of products.
Implementation Of The Consumption Taxes
Currently, the GST scheme is practised in over 100 countries including Singapore, China and many of the EU nations.
The GST is a multi-level tax that is levied at every stage of the supply chain. For example, a manufacturer sells his products to a wholesaler. He is required to charge the wholesaler with GST. Then, the wholesaler sells the products to a retailer and charges the retailer with GST. Eventually, the retailer sells the product to consumers who pay the GST. Businesses are able to recover the tax costs which is ultimately borne by consumers.
In Malaysia, the government imposes the Sales Tax and Service Tax, both of which are single-stage taxes. The Sales Tax applies only at a single point during manufacture or importation after which the wholesaler or retailer are not required to charge tax. The wholesaler who purchased the product from the manufacturer will then sell to the retailer at a price that includes the sales tax cost.
As for Service Tax, it is charged at the point when certain professional, hospitality and food services are provided itself.
Any business in Malaysia who manufactures taxable goods or provides services with total sales value of the taxable goods exceeding the threshold of RM500,000 a year is required to register and charge Sales and Services Tax.
Tax Rates
The standard GST rate is 9% on goods and services with certain exemptions. GST exemptions apply to the provision of most financial services, the supply of digital payment tokens, the sale and lease of residential properties and the importation and local supply of investment precious metals. Goods that are exported and international services are zero-rated.
In Malaysia, the general rate for Sales Tax is 10%. There are exemptions on construction materials, petroleum oils, timepieces and certain food products that incur a Sales Tax rate of 5%.
The standard Services Tax rate is 6%. In March 2024, the Malaysian government increased the service tax rate from 6% to 8% for several sectors including logistics, brokerage and underwriting services and karaoke centres.
GST Vs SST: Which Is Better?
The implementation of GST is more streamlined as it is fairly applied among all businesses involved, whether it’s manufacturing, wholesaling, retailing or service sectors. Under the GST scheme, exports are zero-rated and exporters are able to recover the GST cost incurred along the supply chain. This reduces business costs and better positions our exports industry on the global stage.
The broad-based GST is imposed on nearly all goods and services as well as imported products. With that, the implementation is more transparent and consumers are able to know what items they need to pay tax for and how much tax they need to pay.
On the other hand, the SST has a narrower approach, with it being applied only on certain goods and services. Previously, the Malaysian government had implemented GST in 2015 but was later replaced with SST in 2018 due to objection from the public, with lower-income earners having felt the burden of the broad-based GST that was implemented on all goods and services.
Although the Sales Tax rate in Malaysia is higher at 10%, this does not necessarily mean that consumers pay more taxes. Sales Tax is imposed once at the earlier stage of production when the selling price is expected to be lower.
A benefit of the SST is that lesser business are required to register and pay tax, so there’s lesser administrative work for businesses.
The shift back to SST by the Malaysian government has significantly reduced the government’s tax income revenue needed to invest in the growth of the country. Recently, the World Bank has suggested Malaysia to reinstate GST to boost government coffers as part of its reforms, according to news reports.
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