What’s in this article
- What is Sales and Service Tax?
- How the Sales and Service Tax in Malaysia Works?
- Difference between Sales and Services Tax and GST in Malaysia
- Scope of Taxable Services in Malaysia
- How to Register for Sales and Services Tax in Malaysia
- Making The Transition to Sales and Services Tax
- When to File the Sales and Service Tax Return?
- GET STRATEGIC TAX PLANNING WITH US TODAY
- FAQs
Taxation is a common term for businesses and individuals, with every country imposing its own tax systems. Each country’s tax system has its own advantages and disadvantages – let’s take a look at the Sales and Services Tax (SST), which is necessery for businesses in Malaysia.
What is Sales and Service Tax?
Sales and Service Tax Malaysia (SST) consists of 2 separate taxes:
- Sales tax
The Sales Tax is a single-stage tax that is imposed at import and production levels. - Service tax
The Services Tax is an indirect tax that is imposed on any taxable service which has been provided by a taxable individual in Malaysia and was provided in the name or with the approval of a company.
SST was reinstated on 1 September 2018, and the tax system administered tax rates ranging from 5% to 10%. This was modified in hopes to increase the disposable income of the population due to the lower costs of goods and services. The SST was the tax replacement for GST, which was abolished in June 2018.
How the Sales and Service Tax in Malaysia Works?
Since the SST system in Malaysia operates as a single-stage tax system, taxable persons must charge a taxable amount on goods they sell or manufacture. However, an exception exists for manufacturers exporting goods, as there will be no sales tax issue in such cases.
SST returns in Malaysia must submit to the Royal Malaysian Customs Department (RMCD) on a bi-monthly basis and relevant records of your SST submission must keep for at least 7-years for record purposes. These records can either be in English or Bahasa Malaysia.
Goods sold and manufactured by individuals or businesses who are considered taxable in Malaysia will be subjected to sales and valorem tax, including any taxable goods that are imported into Malaysia.
With the introduction of SST, Malaysia enjoyed the advantage of a lower cost of living as sellers pay sales tax at the point of sale only once.
Difference between Sales and Services Tax and GST in Malaysia
Here are the differences between the former GST system in Malaysia and the new SST system which is currently enforcing:
| GST in Malaysia | SST in Malaysia |
|---|---|
| Effective in Malaysia on 1 April 2015 | Implemented in Malaysia since the 1970s until replaced by GST in 2015-2018, and reintroduced with modifications in 2018 |
| Tax was imposed on each level of distribution (manufacturers, wholesalers, retailers, consumers). | Only imposed on the manufacturer and consumer level |
| Paid input taxes are claimable by businesses | No Input Tax credit system for Taxes encountered. |
| Enabled the curbing of transparency, misappropriation and tax-payment issues | Certain importers, manufacturers, wholesalers or retailers could fail to declare their taxes through transfer pricing |
| The standard charge for GST rates was 6% (it’s not an added tax) | Tax rates may vary from 5% to 10% (multiple rates covering different categories of goods and services) |
| Advantage of this tax is that it is business friendly, and input tax is available upon receipt of the tax invoice | Advantage of SST compared to GST is that it is simple, straightforward, no refund issues for business operators, people friendly and it has a focused, narrow scope |
| Disadvantages include wide coverage, comprehensive, refund issues, eventually imposed on prices sold to the customer, despite having input tax credit, which resulted in cascading prices | Disadvantages are that it is a cost to business, and deductions are based on sales (matching principles) |
Scope of Taxable Services in Malaysia
In Malaysia, taxable services include the following industries:
- Advertising
- Hotels
- Food and beverage preparation
- Employment agency
- Parking and hire car services
- Telecommunications
- Surveyance
- Valuation
- Architectural
- Engineering
- Credit cards
- Electricity
- IT services
- Consultancy services
- Management services
- Insurance and Takaful services
- Legal and accounting services
- Courier and forwarding services
- Pay TV services
- Gaming
- Clubs
- Motor vehicle repairs
It would be required to register for SST if your business’s taxable goods and service value exceeds the RM500,000 threshold within 12 months. However, if you’re operating a manufacturing or import company and your goods are not exempt under the SST, you need to pay a sales tax of either 5% or 10%.
How to Register for Sales and Services Tax in Malaysia
If you have a business in Malaysia, you need to register for SST via the MySST system. All applications will be under review within a 24-hour timeframe if you are an existing GST registrant. In the case that your documents require a verification process, the approval may take slightly longer.
You will automatically be liable for the SST registration if your business was previously registered under the GST system. You may also apply for voluntary registration if your manufactured goods are taxable and below the threshold.
Companies in Malaysia must prepare SST on an accrual basis and keep records within Malaysia for at least 7 years. If you prefer to maintain records abroad, you need approval from the Director General before doing so, and records can be kept in either hardcopy or softcopy.
Making The Transition to Sales and Services Tax
Businesses under the previous GST tax regime when it came to claiming input tax after the SST introduction this timeframe is about 4 months from the date of the SST introduction. Businesses need to declare their output tax in their final GST-03 return form.
When to File the Sales and Service Tax Return?
Note that the SST return must still be filed even when there is no tax. The taxable period for it is every 2 months. The SST payment must be made within 30 days from the end of the taxable period
You can file the SST by downloading Form SST-02 from the MySST portal and mailing it to the Customs Processing Centre (CPC) by post. Alternatively, you can do it online through the CJP system.
FAQs
The Sales Tax is only imposed on the manufacturer level, the Service Tax is imposed on consumers that are using tax services. SST rates are less transparent than the GST which had a standard 6% rate, the SST rates vary from 6 or 10%.
As your company’s Tax agent, Paul Hype Page & Co Chartered Accountant will be fully responsible for the practice of ensuring that these conditions are met. It is important that we be highly qualified and well versed in local regulations and corporate laws, as we are responsible for the upkeep of important company files, tax reports and tax records.
Malaysia attracts investments from around the world by reducing its corporate income tax rate and introducing different tax incentives. Malaysia has one of the lowest corporate tax rates in the world.
IRB (Inland Revenue Board) governs Malaysia’s tax system, helps develop a stronger economy, better environment and a more vibrant economy. All companies, regardless of industry, have a legal duty to pay taxes.
