This article addresses the reintroduction of the Sales and Service Tax (SST) regime in

Malaysia on 1 September 2018. The article is relevant for candidates preparing for FTX
(MYS) Foundations in Taxation as well as providing a good foundational read for candidates
taking the TX (MYS) Taxation and ATX (MYS) Advanced Taxation exams. The article is
based on prevailing laws as at 31 March 2019.

Sales and Services Tax (SST) was reintroduced by the Malaysian Government on 1
September 2018 to replace the Goods and Services Tax (GST) which had only been
introduced just over three years before that, on 1 April 2015. Prior to this, the country was
under a sales and service tax regime similar to the current SST regime, which as a result, is
often coined as SST Version 2.0.
The author notes that there appears to be confusion amongst candidates on the SST regime as
they tend to still apply the GST principles. The fundamentals of the two tax regimes are
rather distinct. The purpose of this article is to try to draw out the difference between them
and allow candidates to appreciate the basic principles of SST.
1. There is no such thing as 'SST'
Firstly, candidates must appreciate that there is no tax legislation called the 'Sales and Service
Tax Act'. Unlike GST, there are two separate pieces of legislation that govern the tax regime,
namely the Sales Tax Act 2018 and the Service Tax Act 2019 which impose sales tax and
service tax accordingly.
Sales tax is a single stage tax charged and levied on all taxable goods manufactured in or
imported into Malaysia. On the other hand, service tax is imposed on certain prescribed
services called 'taxable services'. A person who provides taxable services exceeding a
specified threshold is required to be registered and is known as a 'taxable person' who is
required to charge service tax on his taxable services made to his customers.
The basis of taxation differs between sales tax and service tax as well. Sales tax is applicable
to manufactured and imported goods whilst service tax is imposed on certain prescribed
services which may include goods such as food, drinks and tobacco. The prescribed service
in relation to the sale of goods normally refers to those sales of goods which come with a
service element such as when a meal is sold in a hotel or a restaurant.
2. Multi stage vs. single stage tax
GST is a multi-stage tax where every businesses within the supply chain is required to charge
GST. Sales tax and service tax, however, operate under what we call a single stage tax
regime whereby the tax is only collected at one point in a supply chain.
For sales tax, it is charged at the point of manufacture or importation. Subsequently, when
the goods move through the supply chain, there is no requirement to charge sales tax
anymore. Neither a wholesaler who sells the goods to a retailer nor the retailer who
subsequently sells them to consumers are required to charge sales tax.
Notwithstanding that the wholesaler is not required to charge sales tax to the retailer, if the
wholesaler has purchased the goods from a manufacturer, the manufacturer would have
charged the wholesaler with sales tax. The sales tax cost would therefore be embedded
within the price of the goods when the wholesaler sells the goods to the retailer.
In the case of service tax, it is imposed at the stage when the services are being provided.
Being a single stage tax, the number of businesses required to be registered are a lot less and
therefore, the administrative burden on businesses is reduced. This is one of the key plus
points of sales tax and service tax.
3. Absence of input tax credit mechanism
As GST is imposed on various levels throughout the supply chain, to avoid the multiple level
of taxes, it operates an input tax credit mechanism to allow businesses to recover the GST
suffered on their purchases. This would mean that ultimately, only the final consumer would
be the one bearing the GST.
Sales tax and service tax, however does not operate an input tax mechanism and therefore the
sales tax and service tax charged would become a cost of business to the purchaser of the
goods or services.
4. SST adopts a narrow tax base approach
One key reason for the abolishment of GST is that the tax has been burdensome to the man-
on-the-street as the tax regime is broad based. Under GST, all goods and services are taxable
unless specifically zero rated or exempt. However, the sales tax and service tax regime
impose tax on certain goods manufactured and imported in Malaysia and certain prescribed
services only. With this, consumers should see cheaper consumer prices on the goods and
services.
5. Tax rates
GST adopted a single rate of tax i.e. 6%, whilst sales tax and service tax have a standard rate
of 10% (with some goods at 5% or exempt) and 6% respectively.
Even though the sales tax is higher at 10%, this does not necessarily mean that the goods
suffer a higher incidence of tax. This is because the imposition of sales tax is at the earlier
stage of the supply chain when the sales value is expected to be a lot lower as compared to
GST which is imposed at all levels up to the retail price.
Let’s go through an example to illustrate the interaction of both sales tax and service tax.
EXAMPLE
Ali Engineering Sdn Bhd (AESB) is principally involved in the provision of engineering
services with an annual turnover of RM3 million. It purchased computers from a local
trading company as well as imported a design machine from Singapore. It also procured
accounting services from Baba & Co, a service tax registrant. Outline the sales tax and
service tax implications of the various transactions.
Answer
AESB is required to be registered as a taxable person for service tax purposes as the
provision of engineering services is a taxable service and it has exceeded the registration
threshold of RM500,000. As such, AESB will be required to charge and collect service tax in
relation to the engineering service fee invoiced to its customers.
The purchase of computers from a local trading company is not subject to sales tax as sales
tax is only applicable if AESB purchases them directly from a manufacturer or imports them.
The importation of the design machine from Singapore is subject to sales tax even though
AESB is not a sales tax registrant. The sales tax will be collected at the point of importation,
when clearing the goods from Customs.
In respect of the accounting service provided by Baba & Co, Baba & Co will charge service
tax on the accounting fee invoiced to AESB.
The sales tax payable on the importation of the design machine as well as the service tax
payable on the accounting service fee will become a cost of business to AESB. These are not
recoverable against the service tax charged by the company on the engineering service fee to
its customers.
Sales tax and service tax concepts
To facilitate the understanding of the basic features applicable to sales tax and service tax, the
table below seeks to summarise the key points:

Key features Sales tax Service tax

Scope of charge Sales tax is charged and levied on all
taxable goods:
(i) Manufactured in Malaysia by a
registered manufacturer and sold, used
or disposed of by him; or
(ii) Imported into Malaysia by any
person.
Tax rate 10%, 5% or exempt. Specific rate
applicable to certain petroleum
products.
Taxable goods / Taxable goods are class or type of
services goods that are not exempt from sales
tax.
Taxable person Any person involved in the
manufacturing of taxable goods above
the registration threshold and not
exempt from registration.
Registration Annual sales value of RM500,000.
threshold
Taxable value Manufactured goods - the sale value of
taxable goods determined based on the
transaction value of the taxable goods
i.e. the price for which the taxable goods
are actually sold by the registered
manufacturer to the purchaser.
Imported goods - the sale value of the
taxable goods shall be the sum of the
Service tax is charged on:
(i) any provision of taxable services
provided in Malaysia by a registered
person in carrying on his business; or
(ii) any imported taxable services i.e.
taxable services acquired by any person
in Malaysia in carrying on his business
from any person who is outside
Malaysia.
6%. Specific amount of RM25
applicable to credit cards.
Taxable services (including sale of
certain goods) prescribed under the
Regulations.
Any person who is prescribed to be a
taxable person i.e. provides taxable
services in Malaysia above the
registration threshold.
The threshold depends on the type of
taxable services, ranging from nil to
RM1.5 million. The common threshold
amount is RM500,000.
Taxable service for the sale of goods
(a) Where the receiver of the service is
not connected with the taxable person,
the value is determined based the actual
price for which the goods are sold;
(b) Where the receiver of the service is
connected with the taxable person or
where no charge is levied, the value is
based on the price at which the goods
 following amounts:
(i) The value of such taxable goods for
the purpose of customs duty;
(ii) Customs duty, if any, paid or to be
paid on such taxable goods; and
(iii) Excise duty, if any, paid or to be
paid on such taxable goods.
Accounting for Manufactured goods
tax The tax is due at the time the taxable
goods are sold, disposed of otherwise
than by sale, or first used otherwise than
as materials in the manufacture of
taxable goods by the taxable person.
Imported goods
The tax is due at the point of
importation (i.e. clearing the goods from
Customs).
Taxable period Two month period
would have been sold in the ordinary
course of business to a person not
connected with the taxable person.
Other taxable services
(a) Where the receiver of the service is
not connected with the taxable person,
the value for charging service tax shall
be determined based on the actual price
for which the taxable services are
provided or the actual premium or
contribution paid for the insurance
coverage;
(b) Where the receiver of the service is
connected with the taxable person or
where the services are provided for free,
the value is based on the open market
value of the taxable service i.e. provided
in the ordinary course of business to a
person not connected with the taxable
person.
Taxable services by taxable person
The tax is due at the time when payment
is received for the taxable service
provided to the customer by the taxable
person.
When the whole or any part of the
payment in respect to the taxable service
provided is not received within a period
of 12 calendar months from the date of
invoice, service tax is then due on the
day following that period of 12 calendar
months.
Imported taxable services
The service tax is due at the time when
the payment is made or invoice is
received for the service, whichever is
the earlier.
Two month period
Deadline to Last day of the month following the end Last day of the month following the end
submit return of the taxable period. of the taxable period.

Written by a member of the FTX (MYS) and ATX (MYS) examining team