SST - for better or worse ?

What is Sales & Service Tax (SST) in Malaysia? - SST Malaysia

Today, the Sales and Service Tax (SST) makes a comeback on our tax radar screen to replace the three years and two months old Goods and Services Tax (GST), which was implemented on April 1, 2015.

The abolition of the GST and replaced with SST is an election promise of the Pakatan Harapan manifesto.

It has been claimed that the GST is a regressive broad-based consumption tax that has burdened the low- and middle-income households amid the rising cost of living. The multi-stage tax levied on supply chains also caused cascading cost and price effects on goods and services. That said, the Finance Minister has acknowledged that the GST is an efficient and transparent tax.

Following the implementation of the SST, the Government will come to terms that the budget spending will have to be rationalised and realigned with the lower revenue collection from the SST to keep the lower budget deficit target on track.

The expected revenue collection from SST is RM21bil compared to an average of RM42.7bil per year in 2016-17 from GST.

During the period 2010-2014, the revenue collection from the SST, averaging RM14.8bil per year (the largest amount collected on record was RM17.2bil in 2014), of which 64% was contributed by the sales tax rate of 10% while the balance 36% from the service tax of 6%.

Faced with the revenue shortfall, the Government expects cost-savings, plugging of leakages, weeding out of corruption as well as the containment of the costs of projects would help to balance the financing gap between revenue and spending.

The sales tax rate (0%, 10% and 5% as well as a specific rate for petroleum) and service tax of 6% is imposed on consumers who use certain prescribed services. The taxable threshold for SST is set at annual revenue of RM500,000, the same threshold as GST, with the exception for eateries and restaurants at RM1.5mil.

As SST is levied only at a single stage of the supply chain, that is at the manufacturers or importers level and NOT at wholesalers, retailers and final consumers, it has cut off the number of registered tax persons and establishments from 476,023 companies under GST as of 15 July to an estimated 100,405 under SST.

The smaller number of registered establishments means no more compliance cost to about 85% of traders.

The distributive traders (wholesalers and retailers) will be hassle-free from cash flow problems, as they are no longer required to submit GST output tax while waiting to claim back the GST input tax. During GST, many traders imputed refunds into their pricing because of the delay in GST refunds. This was partly blamed for the cascading cost pass-through and price increases onto consumers.

For SST, 38% of the goods and services in the Consumer Price Index (CPI) basket are taxable compared to 60% under the GST.

It is estimated that up to RM70bil will be freed up to allow consumers to spend more.

Expanded scope

The proposed service tax regime has a narrower base (43.5% of services is taxable) compared to the GST (64.8% of services is taxable).

Medical insurance for individuals, service charges from hotel, clubs and restaurants as well as household’s electricity usage between 300kWh and 600kWh are not taxable. However, the scope of the new SST has been expanded compared to the previous SST. Among them are gaming, domestic flights (excluding rural air services), IT services, insurance and takaful for individuals, more telecommunication services and preparation of food and beverage services as well as electricity supply (household usage above 600kWh).

For hospitality services, the proposed service tax lowered the registration threshold of general restaurants (not attached with hotel) from an annual revenue of RM3mil under old service tax regime to RM1.5mil, resulting in expanded coverage of more restaurants.

Private hospital services will be excluded under the new SST regime.

How does SST affect consumers?

Technically speaking, the revenue shortfall of RM23bil between SST and GST is a form of “income transfer” from the Government to households and businesses. This is equivalent to tax cuts to support consumer spending.

Will it lead to higher consumer prices?

The contentious issue is will the SST burden households more than that of the GST? It must be noted that the cost of living not only encompasses prices paid for goods and services but also housing, transportation, medical and other living expenses.

The degree of sales tax impact would depend on the cost and margin (mark-up) of businesses along the supply chain before reaching end-consumers.

The coverage and scope of tax imposed also matter.

As the price paid by consumers is embedded in the selling price, this gives rise to psychology effect that sales tax is somewhat better off than GST.

The good news to consumers is that 38% of the goods and services in the Consumer Price Index (CPI) basket are taxable compared to the 60% under the GST.

Technically speaking, monthly headline inflation, as measured by the Consumer Price Index, is likely to show a flat growth or even declines in the months ahead.

It must be noted that consumers should compare prices before GST versus the three-month tax holiday (June-August).

Generally, consumers perceived that prices should either come down or remained unchanged as the sales tax is levied on manufacturers.

On average, some items (electrical appliances and big ticket items such as cars) would be costlier when compared to GST and some may come down (new items exempted from SST).

Nevertheless, we caution that consumers may experience some price increases, as prices generally did not come as much following the removal of GST in June.

There are concerns that prices may still go up in September when the new SST kicks in as irresponsible traders may take advantage to increase prices further.

Household consumption, which got a big boost during the three-month tax holiday in June-August, could see some normalisation in spending.

The smooth implementation of the new SST, accompanied by strict enforcement of price checks and the curbing of profiteering, especially for essentials goods and services consumed by B40 income households, are crucial to keep the level of general prices stable.

Strong consumer activism with the support of The Federation of Malaysian Consumers Association and the Consumers Association Penang as well as the media must work together to help in price surveillance and protect consumers’ interest.

Credit to Lee Heng Guie - comment

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New Malaysia should push for meritocracy

The Meritocracy Paradox

Pakatan Harapan’s unexpected win in the recent 14th General Elections sent a signal that it is time for the country to move towards focusing on being more performance oriented and making decisions on the basis of meritocracy for the long-term good of its citizens.

Interview with Tan Sri G.Gnanalingam

Westports Holdings Bhd’s chairman Tan Sri G. Gnanalingam says this is the basis of how the company has been operating all this and notes that it is paying off today.

“Westports has always prided itself on being a performance-oriented organisation, being innovative and treating our employees as family members,” he says.

Gnanalingam, who has been the face of Westports for more than 20 years, says this idea can be extended to how the country can be governed as well.


He says that in the company, everyone is treated equally irrespective of race or gender and this has worked tremendously well.

He notes that this also comes with some form of a safety net for those who can’t perform as well as their counterparts.

“The system should be such that we reward success but provide some safety needs for the unfortunate few who didn’t make it, but the safety net is not so big that it promotes complacency.

“There will always be some members of the community who do not do as well as others. This is where we need to lend a hand to support them, regardless of race or gender,” Gnanalingam adds.

This is important because innovation is best built on meritocracy and is a needed ingredient for the country to excel in the new economy of the Internet.

“Innovation is needed as the world prog­resses forward; we cannot move backward. Today, we have a computer in our pocket called the smartphone, which does all kinds of things.

“Malaysia needs to forge ahead as the future is increasingly influenced by information technology, artificial intelligence and Industry 4.0,” Gnanalingam says.

“As for the new Malaysia, I believe that transparency, good governance and people first should be values that are celebrated,” he adds.

Gnanalingam, who is the founder of Westports, also tells of the company’s humble roots, noting that it has grown by leaps and bounds and is now listed on Bursa Malaysia.

“The year 1994 was when we started building Westports. In fact, we were the first private company to build a port after the British left in 1957.

“Prior to the birth of Westports, Port Klang was a port that had less than one million container volume. Malaysia transshipped everything from Penang, Kuantan, Johor and even East Malaysia to Singapore,” he says.

He also highlighted that while the company is primarily a family-owned firm and is now helmed by his son Datuk Ruben Emir Gnanalingam, who is Westports’ group managing director, the family still takes heed of the advice of professional managers.

“Leading Westports is a bit like managing a football team. In order to win, we must assemble the best players, train very hard, formulate specific strategies and out-do our opponents. And we must continuously improve our skills and knowledge of the game. There will always be room for innovation and a better way to do things,” Gnanalingam says.

Westports has grown steadily since its inception in the year 1994.

Today, the company is a RM12.8bil company in market capitalisation on the Bursa Malaysia Main Board.

Recalling the the company’s early days, Gnanalingam says Westports had to focus on what was important: its productivity.

“I always tell our people to focus on raising productivity, being innovative and being cost-effective. Westports is ranked among the top five in the world in terms of productivity.

“Westports has also risen from 27th place to 12th place in the world port traffic league rankings.

“Once Westports was born, we focused on producing the best service for our customers, the shipping lines. To do that, we improved our productivity.

“Our crane operators are well trained. Their performance is world class as they are able to do 35 or more containermoves per hour,” he says.

The company’s terminal tractor operators and stowage clerks have also been upskilled to create a fast turnaround time for the cargo from the container yard to the vessel and vice versa.

While the going seems smooth now, Gnanalingam notes that it was not always smooth sailing for Westports, as it had to go through several financial crises and political uncertainty on the global front, where it threatened or slowed down shipping demand.

However, hHe notes that it has grown its market share steadily and incrementally over the past 20 years.

Today, he notes that Westports captures 16% of the container volume moving through the Straits of Malacca and supports 38% of all container volume in Malaysia.

“And today, we are proud to be one of only three mega-transhipment hubs in the entire Asean region,” he says.

Costs to ship and out of Malaysia have also fallen tremendously and Gnanalingam notes that both exporters and importers pay some 90% lower in freight charges today.

“Before 2005, it cost about US$800 (RM3,280) to freight a container from Port Klang to Busan in Korea. Today, the cost is about US$35 (RM143) only.

“To cite another example, before 2005, it cost about US$500 (RM2,050) to freight a container from Port Klang to Kaoshiung in China. Today, the cost is about US$110 (RM450), which is almost 80% lower,” he says.

Credit to : Daniel Khoo The Star

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