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Malaysia Begins Charging New Sales and Services Tax

September 4, 2018

On September 1, Malaysia began charging its new Sales and Services Tax (SST) on goods sold in the country. Its government hopes this will be far more accepted than the previous administration’s Goods and Services Tax (GST).

According to Malaysian Finance Minister Lim Guan Eng, the new Sales and Services Tax which just went into effect in the country is badly needed, to balance the budget. Without it, the country is currently facing a 4 billion Malaysian Ringgit. That is US $970 million dollars.

The new tax replaces the widely unpopular Goods and Services Tax (GST) put in place in 2015 during the last administration. That tax, which applied at a rate of 6%, was abandoned in June of this year while a new tax plan was being developed.

The new tax has several differences from the last one. One important to note is that the tax is applied at only one stage in the ‘value chain’ for products and services. It will be applied only when, for goods at least, manufacturers sell their goods to distributors. For that reason, what consumers will simply see is an end price when they buy items, without necessarily knowing everything involved in the sales transaction.

That creates a bit of a transparency problem, something which many felt was an issue with the previous GST. If applied rigorously and policed appropriately, it could help the country gain confidence that the tax is a fair one. Considering that a number of politicians who actively opposed the tax will be watching the changes carefully, this will be an important step in the process.

Another difference is that under the SST, an estimated 5500 items commonly purchased in the country will be tax-exempt. Items considered ‘essentials’ to daily life would have no tax. These include items such as fresh chicken, fish, rice and vegetables. The tax-free list also includes items such as canned sardines, diapers and even wheelchairs. In all cases, the best way to understand the exemption is that all these products are considered “essential”.

All canned goods, except for a few items such as sardines, are now subject to a 5% tax.

A tax of 6% will be charged on services such as food and beverage establishments, and telecommunications.

Items such as televisions, cell phones, and other electronic goods will see charges of 10% levied on them.

In total, the average tax on goods is expected to be considerably less than the previous 6% ‘across-the-board’ Goods and Services Tax. The total number of goods to be taxed under the SST is also projected to be roughly half that under the GST.

For those concerned about the new tax and its immediate impact on consumers, the government has reminded people that this tax only takes affect for new transactions from manufacturers to distributors. Goods which are already in stores, many of which have been tax-exempt since the GST was dropped in June, will not go up in price at all. According to experts, it will take about a month – to early October – for the new SST to begin impacting prices in the country.

Copyright: North America Procurement Council Inc., PBC