GST vs SST 2.

Application & Implication

SAGA Government Agency Conference

17 July 2019

Faizulnudin B. Hashim
CDPCP, Bahagian CDN
Ibu Pejabat JKDM, Putrajaya
The information presented in the slides aim to provide a better under standing of SST treatment and is not intended to
address all possible SST issues. The information is correct as at the date of presentation. While all effort has been made
to ensure that this information is consistent with the prevailing law and procedures, should there be any changes,
RMCD reserves the rights to vary our position accordingly.
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Table of Contents

page page

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GST vs SST2.0 GST vs SST2.0
Application Implication

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 GST vs SST2.0

Application
 GST vs SST2.0
Malaysian consumption tax in a nutshell
SST2.0
System GST
Sales Tax 2018 Service Tax 2018
Year of introduction 1 April 2015 1 September 2018

Sales Tax 1972

Replacing Goods and Services Tax 2014
Service Tax 1975
• Selected taxable
• supplies of goods & • sale of manufactured
services in Malaysia
Scope of charge services; taxable goods;
• Imported taxable
• importation • importation
service
• Standard rate
• 5%, 10%; • 6%;
Rate • Zero rate
• specific rate (Petroleum) • RM25 (Credit card)
• exempt supply
• adjustment of CN & DN
• input tax credit; • exemption on raw • deduction of refunded
Facilities • tax relief materials, packaging tax
• various schemes materials & component • B2B Exemption for
Professional service
• RM 1.5M (F&B)
Threshold • RM500,000 • RM 500,000 • RM 500,000 (Others)
• In business (Customs
agent)
 Summary of GST Mechanism
Standard Rate
6%

Manufacturer - Wholesaler- Retailer/Dealer-

Claims back GST Claims back GST Claims back GST GST paid is 6 %

Zero Rate

0%

Manufacturer - Wholesaler Retailer/Dealer-

Claims back GST Claims back GST Claims back GST GST paid is 0 %

Exempt
6% GST

Wholesaler - Retailer/Dealer - Can

Claims back GST not claim back GST No GST is payable
 SCOPE & METHODOLOGY OF SST

SALE TAX

CHARGE &
LEVIED ON TAXABLE
TAX SYSTEM THRESHOLD
TAXABLE PERIOD
GOODS

• Manufacturing
Single Stage Tax RM500,000 bi monthly
• Importation

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 HOW SALES TAX WORKS?

Manufacturer Wholesaler Retailer Consumer

Element of sales
Govt collects tax tax embedded in
at the manufacturer’s the price paid
level only by consumer

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 SCOPE & METHODOLOGY OF SST

SERVICE TAX

TAXABLE TAXABLE
TAX SYSTEM THRESHOLD
SERVICE PERIOD

Single Stage Tax RM500,000 PRESCRIBED bi monthly

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HOW SERVICE TAX WORKS?
Government collects
tax ONCE (at the start)

Businesses

Service Tax

Service
provider

Consumer
Government collects
tax ONCE (at the start)
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 GST vs SST 2018
Application

GSTA2014 SST 2.0

 GST Act 2014 [Act 762]
• Tax on supply
 Anything done for consideration
• Scope of taxation: supply made in
Malaysia
 Where the supplier belongs
• Charging of tax: at the time of
supply
 Payment / invoiced / service
performed
• Sales Tax Act 2018 [Act 806]
• Service Tax Act 2018 [Act 807]
• Tax on business transaction
• Scope of taxation:
 Taxable goods manufactured /
imported goods
 service provided in Malaysia /
imported taxable service
• Charging of tax:
 Transfer of properties of goods
 when service is provided
 GST vs SST 2018
Application

GSTA2014 SST 2.0

• Tax on the
 Value of manufactured
• Consideration of supply is goods sold / customs value
inclusive of tax of imported goods
 Actual value of service
provided
• Tax is due (to be accounted)
 Goods: when goods
removed / point of
• Tax is due (to be accounted) at
importation
the time of supply
 Service: when payment is
received for the service
provided
GST STRUCTURE

• Rate = 6% (one single rate)

• Threshold = RM500,000 (for all types of businesses)
• Zero-rated supplies
• Foodstuff • Supply of the first 300 units of
• Agriculture products electricity for domestic use
• Livestock • Supply of treated water for
• Poultry & eggs domestic use
• Seafood • Exported goods and services

• Exempt supplies
• Land for general use • Private health & education
• Agriculture land services / child care
• Residential property • Rights to use Land
• Highway toll • Financial services
• Funeral, burial or • Public transport (land & water
cremation mode)12
 SALES TAX 2018: Taxable Goods
 Taxable goods means goods of a class or kind not exempted from sales tax
 Examples of taxable goods ---
Processed Foods Furniture
• Biscuits • Sofa
• Fruit juice • Mattress Tourist favorites
• Dry noodle • Watches
• Processed meat or fish Personal items • Cameras
• Butter, margarine • Spectacles
• Shampoo
• Jams
• Toothpaste
Foods & drinks • Shower gel Other

• Fizzy drinks (Coke, Electrical appliances • Engine oil for vehicle

100+) • Brake fluid
• Washing machine • Tobacco products
• Chocolate
• Television
• Ice cream
• Electronic device
Petroleum products • Smart phones
• Computer devices
• Eg: Tariff code 27.10 of • Printer
RON 97 and above
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FH
 Goods Exempted From Sale Tax
Eg of Exempted GOODS:
Live animals Machinery Health
• Horses • Vending machine • Medicine
• Fish • Escalator • Vitamin
• Sheep & goats • Industrial machine • Hearing aids
• Pacemaker
Food items
Personal items
• Rice Vehicle
• Beef, mutton and • Pampers
chicken • Deodorant • Motorcycle below
• Seafood 250cc
• Fruits & Vegetables • Bicycle
General goods
• Sardine
• Cooking oil • Newspaper
• Coffee • Books
• Bread • Wheelchair

Please refer Sales Tax (Goods Exempted From Tax) Order 2018 [P.U.(A)219/2018]
for the gazetted goods 14
FH
IMPOSITION OF SERVICE TAX

TAXABLE PERSON

PRESCRIBED TAXABLE SERVICES

First Schedule, Service Tax Regulations 2018 [P.U.(A)214/2018]

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 GST vs SST2.0

Implication
2018
Orang Berdaftar: 476,348

Orang Berdaftar: 69,293

RM 4,883,887,017.75
Rationalization

• The rationale to introduce the GST is to

 Modernize and reform the tax system
 Overcome the inefficiency of the indirect tax system
 Curbing excessive profiteering with the transparent GST
pricing mechanism and would benefit consumers
 Boost the Government revenue and help to plug leakages
 Achieve our vision to become high income developed
nation by 2020

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 Why GST?
• Increase savings and investment
More Effective,
• Self policing system/ Increase Tax Compliance
Efficient and • Less bureaucracy / less red tape
business-friendly • Transparent / Cross checking elements
• Double Taxation / Tax Cascading
Weaknesses in Sales • Transfer Pricing
and Service Tax • No Tax Relief On Exports / Tax embedded
• Pyramiding effect / vertical integration
•Reduce dependence on
More Stable Source • income tax/direct tax (>50% of revenue)
of Revenue • petroleum revenue
•Less affected by the economic downturn
• Motivation to register GST with incentive for
Shadow Economy traders and able to claim GST inputs
• Size in Malaysia is quite big (30%)
Not only the locals • Tourist and foreigner also have to pay GST
have to pay tax
Sales Tax Weakness  Cascading Tax
10% Sales Tax
MANUFACTURER : Tax collected by
Cost RM100 + 10% tax (RM10) government :
= RM110 RM10.00
Tax collected by
government : RM0.00
WHOLESALER : Hidden tax : RM2.00
(RM10x20%)
Purchase cost (RM110) + 20%
profit margin (RM22) = RM132 Tax collected by
government : RM0.00
Hidden tax : RM3.60
(RM12x30%)
RETAILER :
Purchase cost (RM132) + 30% profit * Tax has increase to
margin (RM39.60) = RM171.60 RM15.60 (10 + 2 + 3.60)

Total loss/ tax not

collected = RM15.60 -
CONSUMER : RM10.00 = RM5.60
*Final price RM171.60
Immoral Business
(Pay Hidden Tax) “free ride”
 GST is no loss on revenue
MANUFACTURER : Tax collected
COST RM100 by government
: RM6.00
GST = RM6

WHOLESALER : Tax collected by

government :
Cost (RM100) + 20% profit margin RM1.20
(RM20) = RM120 (RM7.20 – RM6)
GST = RM7.20

Tax collected by
RETAILER : government :
Purchase price (RM120) + 30% profit RM2.16
margin (RM36) = RM156 (RM9.36 – RM7.20)
GST = RM9.36
Consumer save
payment on hidden Total GST collected
tax = RM 6.24 CONSUMER : = RM9.36
(RM171.60- Total lost / tax not
RM165.36)
Final price : RM165.36 + GST 6%
collected
(No hidden Tax Paid) = RM 0
Cascading Effect (Service Tax) No cascading effect (GST)

Telecommunication Telecommunication Legal Services

Legal Service
services services (RM6,000)
(RM6,000)
(RM1,000) (RM1,000)
Price Price
Price Price
= charge + 6% GST = charge + 6% GST
= charge + 6% CP = charge + 6% CP
= RM1,000 + RM60 = RM6,000 + RM360
= RM1,000 + RM60 = RM6,000 + RM360
= RM1,060 = RM6,360
= RM1,060 = RM6,360

Architect Architect
services services
(RM22,580) (RM22,580)
Charge : RM29,580 (RM22,580 + RM1,000 + RM6,000)
Charge : RM30,000 (RM22,580 + RM1,060 + RM6,360) GST : RM29,580.00 x 6% =RM1,774.80
ST: RM30,000 x 6% =RM1,800 Consumer pay = RM31,354.80 (RM29,580 + RM1,774.80)
Consumer pay =RM31,800 (RM30,000 + RM1,800.00)

Consumer SAVE
Consumer
RM445.20
Total tax paid = RM2,220
Consumer pay (RM1,800 + RM60 + RM360) Consumer pay Total GST paid
= RM31,800 (Hidden Tax) = RM31,354.80 = RM1,774.80
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FOR SURE
• With or without tax, price will increase
• With SST 2.0
 tax is cost to business
 Business will pass tax burden to consumer
• SST 2.0 not a new tax
 GST (6%) [2015 – 2018]
 SST 1.0 (5, 6, 10 %) [1972 – 2015]
• SST 2.0 structure based on SST 1.0
 Not business friendly
 Inherent weakness
 Tax avoidance
 Non compliance
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 TAX SYSTEM BUSINESS CONSUMER

• SST 2.0 is NOT • Bureaucracy • Tax embedded

transparent, fair in price
• Unfairness / non
and less effective
compliance
• Price increase
• Non compliance by
business • Increase of
business cost
• Increase of tax
leakages
• Not in tandem to
GDP growth
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Questions?
 Thank You

FH 26