"I’m trying to see us maintain our
competition," said an experienced indirect tax manager at a
multinational oil company, who said she had been working
weekends to get ready in time for SST, which replaced the
unpopular goods and services tax (GST).
"We don’t want to be any less competitive from
our competitors [and] we want to make sure we are in line with
the legislation," she told International Tax
It is difficult for businesses to be patient when profits,
reputation and market share are on the line.
As well as the uncertainty around how legislation and
included/excluded item lists will develop, companies are
struggling with a lack of guidance and having to make changes
Adding to the uncertainty is the fact that much of the
legislation is still in draft form. Finance Minister Lim Guan
Eng has said that the government could still change its mind on
whether some goods will be subject to the SST, but businesses
are having to muddle through regardless.
"We will study all of these," he said, referring to prawns,
bicycles and motorcycles under 250cc. "We have been going
around listening to feedback from the people. Some are asking
that certain items affected by the SST be taken off the list.
As a concerned government, we will do the needful."
"Be patient," added Lim, after a briefing on SST on
September 1. "Give us some time and we will make the necessary
changes by year’s end."
Will companies be better or worse off?
The most immediate action companies should take, if they
have not done so already, is to analyse whether or not they
need to be registered for SST.
"The SST framework is a more targeted regime that only
applies to manufacturers of taxable goods or persons providing
specific taxable services," said Yvonne Beh, partner in the tax
practice group of Wong & Partners, which is a member firm
of Baker McKenzie. "Hence, not all businesses who were
previously registered under the GST would need to be registered
under the SST regime."
Many businesses will find that fewer, or even none, of their
products are subject to SST. For those that were subject to
GST, this will save a lot of time on compliance and allow for
more competitive pricing as tax does not need to be
Beh pointed out that the SST will bring in MYR 21 billion
($5 billion) less than GST did for the Malaysian government.
Industries that will benefit include real estate and
construction because SST does not apply to the sale of
properties and may not apply to the leasing of heavy
"The scope of the SST is narrower than the GST," said
Saravana Kumar Segaran, partner at Lee Hishammuddin Allen &
Gledhill. "Almost 60% of goods under the consumer price
indexare exempted from sales tax while only a prescribed list
of exhaustive services are taxable. For instance, consultancy,
IT, management and engineering services are all taxable
services but there is no guidance under legislation as to the
scope of such services."
However, most businesses expect to be worse off. While GST
has an input tax credit mechanism – effectively
allowing the tax burden to move down the supply chain and
ultimately be passed to the end consumer – SST has no
"A particular industry which will likely be impacted will be
the automotive industry as there will be a 10% sales tax rate
for most imported motor vehicles and vehicles manufactured in
Malaysia," said Beh. "The retail sector will also likely see
some impact from sales tax, in particular, imported luxury
The oil industry tax manager said: "As an individual I am
very, very sad because coming from a tax background I know the
consequences. From a business perspective, as well,
it’s definitely hitting the businesses
because… now service or sales tax has become a cost to
"It’s affected our pricing," she added.
"We’ve needed to renegotiate a lot of
Similarities to the 'old’ SST
The new SST regime, as it exists upon implementation and
before any change, is largely similar to the old, pre-2015 SST.
That is to say, it is two taxes – sales tax and
services tax – and only listed items are subject to
the tax, as opposed to GST where only listed items were
excluded from the tax.
Irene Yong, partner at Shearn Delamore, said the
difficulties for companies is the current period of transition
from the GST regime to the SST, given the short time frame
within which companies have to adjust.
However, there is a positive aspect. "As far as software and
IT systems are concerned, those which had been used for GST can
be migrated and adapted for SST, hence some cost savings can be
expected," she said.
Such is the confusion around the re-introduction of SST that
even customs officials have confronted restaurant workers,
demanding to know why they are imposing SST, reported Malaysian
news outlet New Straits Times.
All eateries making more than MYR 1.5 million per year must
pay SST, unless they are situated in a free trade zone, special
or tax-free area.
"Don’t fault these outlets," said Lim. "They
are just being responsible and abiding by the law."
The situation is in stark contrast to the 2015 introduction
of GST, which was conducted smoothly – for businesses
at least, but there were individuals rioting in protest
– and with plenty of lead time.
"The law has been brought out very, very hastily," said the
oil industry indirect tax manager. "It’s the same
body, the same tax authority that was [administrating] GST.
When they rolled out GST I thought they did a very good job, I
thought they were very organised."
"The Malaysian tax authority did a great job because there
was a lot of information available on the website, there had a
lot of programmes where people were able to have sessions and
dialogue, [the authorities would] speak to them, get their view
and clarify their position."
The very quick switch from GST back to SST is necessary for
political reasons. The now-ruling Pakatan Harapan party, led by
Mahathir Mohamad, swept to an unprecedented victory. Key to its
success was a promise to repeal GST, which was deeply unpopular
with poorer Malaysians, and replace it with SST.
"The tax authority now, moving from GST to SST, we can see
that they are rushing because they have a deadline," the
indirect tax manager added.
The bills received Royal Assent on August 28, just four days
before becoming effective – and further tinkering is
likely until the end of the year, as Lim has stated.
Up-to-date versions of the proposed legislation, in both
English and Malay, can be found on the dedicated Malaysia
Sales & Service Tax website. The website also includes
full lists of which goods and services are affected, and which
regions are exempt for which aspects of the sales and services