Malaysia’s GST vs SST – Knowing the Difference
The Sales Tax in Malaysia was a federal consumption tax that was introduced and implemented on a wide variety of goods and governed by the Sales Tax Act 1972. The Service Tax was governed by the Service Tax Act 1975, and this was also a federal consumption tax. Both these single stage taxes were abolished when Malaysia’s GST was introduced. Before April 1, 2015, there was no value-added tax or goods and services tax implemented in Malaysia.
The GST was a federal consumption tax based on the value-added concept with a broad base. The tax is payable by intermediaries on all stages of the supply chain, and with the GST system, the burden of the tax was born by the consumer. Malaysia’s GST is general is levied on any supply of taxable goods or services made in Malaysia by a taxable person.
With GST, businesses have the option of recovering their input tax credits which are incurred in connection with standard-rated supplies and zero-rated supplies. However, they will not be able to recover input tax credits on supplies which have been exempted.
What is the Difference Between GST and SST?
GST is significantly different from the previous regime in terms of procedural differences. This includes administrative matters which concern registration and invoicing requirements, to the penalty and interest rates, and the overhaul from this will undoubtedly impose a substantial transformation to Malaysia’s commercial operations.
Here is an overview of the key aspects of the GST versus the prior Sales and Service Tax (SST):
GST Key Points:
- Standard rate of 6% with no reduction rate and zero rate and exemptions.
- Mandatory registration threshold of MYR500,000 of taxable turnover per annum with voluntary registrations permitted for persons with a turnover below the prescribed threshold (subject to approval).
- Group registration is permitted for certain companies (subject to conditions).
- Any foreign entity which makes taxable supplies in Malaysia is registered by appointing a local agent.
- Input GST deductions are applicable to taxable persons, who will be entitled to a credit for as much of his input tax as allowed. Claims for input tax refunds are generally processed with 14 days in the case of electronically submitted returns.
- Registered taxable persons are required to issue an tax invoice. Detailed requirements are provided by the Royal Malaysian Customs Guide on Tax Invoice and Records Keeping.
- Every taxable person was required to report and account for GST. For persons whose taxable supplies were MYR5 million in a 12-month period or more, the taxable period was 1 month.
- Taxable persons were required to keep full and true records of all transactions which may or may not affect their liability to GST for a period of seven years.
SST Key Points:
- Sales Tax of 10% and Service Tax of 6%, 25% tax on cigarettes and tobacco, 20% tax on alcoholic drinks, 5% tax on certain foodstuffs and building materials and exemptions.
- There is no concept of registration, but annual sales turnover exceeding MYR100,000 is required to be licensed under the Sales Tax Act. Voluntary licensing is permitted (subject to certain criteria).
- A credit system existed for input SST deductions, which allowed a deduction of Sales Tax paid for goods purchased by licensed manufacturers. No deductions or recovery for input tax available for Service Tax.
- Suppliers will be required to issue an invoice to customers for the provision of taxable services or the sale of taxable goods in Malaysia. Electronic invoices were permitted if prior written approval was granted by Director General of Customs and Excise.
- Taxable persons were required to report and file a service tax return or sales tax return to the Customs Department within 28 days after the end of every two-month taxable period.
- Taxable persons were required to keep duplicates of invoices, accounting books, receipts and other records which relate to their liability to Sales or Service Tax for a six year period.