The Transition from Goods and Services Tax to Sales and Services Tax
Updated: Jan 4
The Sales Tax Bill 2018 was passed in the Dewan Rakyat on 7th August 2018, followed by the Service Tax Bill 2018 on 8th August. Separately, two additional Bills will be put forward to amend the Free Zones Act 1990 and Customs Act 1967, which are consequential to the implementation of the Sales and Services Tax (SST).
These Bills form part of the new tax regime or rather a re-introduction of the previous tax regime which was abolished in 2015 and will come into force on 1st September 2018.
Revisiting the SST Regime
SST is a single stage of federal consumption tax where business cannot recover the tax paid on their purchases and is treated as a cost to a business. Whereas, the Goods and Services Tax (GST) is a multi-stage tax, which is payable on every transaction between companies before reaching the end customer.
Who Will It Affect?
The Sales Tax Bill 2018 levies a 10% tax rate (5% for certain items) on any taxable good at import or manufacturing levels. This extends to taxable goods imported into Malaysia by any person or companies. The mandatory requirement for registration will affect all manufacturers if their annual turnover exceeds the RM500,000.00 threshold.
On the other hand, the Service Tax Bill with a 6% service tax will be imposed on customers who consume certain taxable services. Nonetheless, it is seemingly limited to domestic services only. Note that the legal profession falls within the list of these taxable services.
On the contrary, the GST imposed a standard rate of tax at 6%. However, the standard rate was payable by all companies. With SST taking its place, the scope of taxable items has been narrowed.
The Implementation of SST
The implementation of the SST is expected to take effect immediately from 1st September 2018. The following are some matters that may affect you during this transitional period:
(a) SST Registration
It would appear, based on the Customs Department’s response, previous GST registered persons in the system will be automatically registered under SST.
However, for applicants who have yet to be registered under GST but have met the registration criteria, will have to apply for registration within thirty days from the commencement of SST. The same criteria can apply as the GST’s registration threshold of RM500,000.00 is maintained.
(b) Cancellation of GST and Related Matters
Upon the cancellation of GST, a business will automatically cease to be GST registered. A GST Registrant will have up to 120 days from the date of the GST Act being repealed to submit their final GST return. Further, the Customs Department has stated that GST Audits will be conducted for closure purposes. Whilst, a claim for GST input tax will be allowed, this must be done by the 29th of December 2018.
(c) Taxable Period
All SST registered entity would have to start charging SST, from 1st of September 2018. The Customs Department have announced that the Sales Tax will on an accrual basis, while service tax will be on a payment basis. Consequently, these entities will have to comply by submitting the first payment of tax and SST returns by the end of November 2018. We anticipate some level of uncertainty during the initial period of SST implementation.
Once we have further information and clarity from the Customs Department, we will be in a better position to further update everyone.