GST To SST: Understanding The Facts And Figures

A lot has been said about the coming change to the Sales and Services Tax (SST) from the current Goods and Services Tax ( GST). Let's break down some of the facts and misconceptions.

Yesterday, Finance Minister Lim Guan Eng confirmed the rates for the Services and Sales Tax (SST) which will officially go into effect from 1 September 2018, pending the necessary passing in Parliament. Because the announcement was made during his keynote speech at the National Tax Conference, it left most Malaysians with more questions than answers.

The keynote speech provides plenty of facts that goes beyond the new rates for SST, which is set at 10% for sales and 6% for services. Here’s a closer look at what Guan Eng did – and did not – mention during the speech.

SST Rate Is Same As Previous Implementation

(Image: New Straits Times)

The 6% and 10% rates may sound foreign to some – especially now that it is in greater focus – but this is the exact same rate that the government had been using before it moved to the Goods and Services Tax ( GST) in 2015. In fact, the SST has been around since the 1970s, where the rate was originally set at 5% before being amended to 6% - which has stayed ever since.

The government has been at pains to address this fact since it went into power.

SST Revenue Will Be Significantly Less Than GST Revenue

Since its inception, the GST collection amount has consistently increased. In 2015, GST collections stood at RM27 billion, while the following two years brought in RM41.2 billion and RM44 billion respectively. At the World Customs Day celebration in January this year, then Prime Minister Datuk Seri Najib Razak claimed that GST collections may have even hit RM45 billion for 2017. Najib commented that the high amount was useful for income redistribution.

In contrast, SST revenue is startlingly lower. According to the Economic Report 2017/2018 released in October 2017, SST contributions for 2014 amounted to RM17.17 billion. Moving forward, Guan Eng shared that the government is projecting SST revenue at RM21 billion a year, with an expected RM4 billion to be collected in 2018 when SST is implemented on 1 September 2018.

On the one hand, a higher tax revenue would be good for the country, as it increases the amount of money to work on projects and development that benefits the people. But because GST is a multi-stage consumption tax that’s imposed at every level in the supply chain, it also increases the cost of living for everyone – even after income redistribution exercises such as Bantuan Rakyat 1Malaysia ( BR1M) is taken into account.

What The Government Is Doing To Offset Lower SST Income

Lim Guan Eng (Image: Business Insider)

Because of this huge difference in revenue, the government naturally must tighten its belt. “To fill up the gap left by the GST, the Ministry of Finance has identified RM10bil worth of expenditure savings,” Guan Eng said. “This is where we need to do a little bit of belt-tightening by cutting down on expenditures, inefficiencies and of course through savings.”

These measures can already be seen in the recent revision of the LRT3 project, which had at first been put on ice before a massive 57% cut in expenditure saw the project brought back to life. Other high-profile projects, like the East Coast Rail Link (ECRL) and the KL-Singapore High Speed Rail (HSR), will likely see a similar renegotiation or even a deferment.

Besides that, external factors – such as the rising crude oil prices as well as dividend payouts from government-linked companies (GLCs) – and the projected RM4 billion SST revenue will bring in around RM15 billion to the country’s coffers as a temporary respite for this year.

The Government Will Lose Billions Of Ringgit During This “Tax Holiday”

(Image: homefinder Malaysia)

Malaysians are currently enjoying a three-month tax break between the zero-rating of GST and the re-introduction of SST. It’s the first time since the Seventies when the Service Tax Acts 1975 that there isn’t any kind of consumption tax imposed, but as the government has been saying from the start, it will end on 1 September.

Considering that Guan Eng has announced an estimated annual revenue of RM21 billion for SST, simple maths will show that this three-month tax-free break will cost the government some RM5.25 billion. Of course, tax collections vary throughout the course of the year, but it should give an idea of how much revenue is lost.

6% + 10% = 16%?!

Dr Ong Kian Ming (Image: Malay Mail)

One of the biggest misconceptions about SST is in the split between sales tax (6%) and service tax (10%). Thanks to some misguided posts on social media, there has been growing outcries that the SST is actually 16%.

At face value, the sales tax of 10% is very obviously more than the 6% for GST, so it’s easy for those who do not understand how SST and GST work to be misled. Add the other 6% service tax and you’ve got a recipe for a disaster. It doesn’t help either that this is being politicised, resulting in more confusion for the rakyat.

At the Dewan Rakyat today, Deputy International Trade and Industry Minister Ong Kian Ming said that this poor understanding of the tax system extends even to some Members of Parliament (MP).

“Sales tax will be applied at the manufacturing point while the services tax is only applicable for service providers,” he said. “It is wrong to combine the rates and assume that it would be 16 per cent collectively… There are also a lot of items that are affected by the Goods and Services Tax ( GST) but exempted from SST. I think there is a little confusion of the scopes of these two taxes at the moment.” He also added that the ministry will have a briefing for MPs to better understand SST.

In all honesty, a lot of the confusion and misconceptions can easily be avoided with some clearer communications from the Ministry of Finance. This may be partly due to the fact that the changes aren't yet passed into law, but with everyone on Twitter and Facebook suddenly being overnight tax experts, it will be in the government's best interests to address this issue. Perhaps the MP briefing can be extended into a PR strategy to include the rakyat? After all, we are also the ones who will be affected by the change from GST to SST.

An example of GST vs SST calculation circulating online whose calculations may or may not be correct.

This sentiment is echoed by the Consumers Association of Subang and Shah Alam, Selanagor President, Datuk Jacob George. “So far, there has been no conversation about the new SST and not much is known about it. All we know for now is that it is going to replace the Goods and Services Tax but its scope and impact has yet to be defined,” he said.

Even economists appear to be having a hard time agreeing on whether SST will reduce prices of goods. While Socio-Economic Research Centre executive director Lee Heng Guie thinks that the new implementation of SST will see a wider scope of coverage, Alliance Bank Malaysia Bhd chief economist Manokaran Mottain does not. Nor could the economists agree on whether prices of goods will increase post-SST. When experts aren't certain, what does that say about us common people?

Thankfully, it appears that information is slowly trickling in. In a statement, Guan Eng briefly addressed the confusion regarding the different tax rates in SST, and reiterating that it will benefit the low-income group in the long run. 

“The 6% service tax applies to selected services and not all services, unlike the GST. The sales tax is imposed on manufacturers’ and importers’ price, while the GST is imposed on the final consumer price. Hence it is wrong to claim that a 10% sales tax is higher than a 6% GST,” he said. 

Guan Eng concluded the statement with a promise to share more on the SST implementations when it is tabled in Parliament. “Unlike the GST, which burdens the poor proportionately more, the new SST will also be tweaked and designed to ensure that the impact on the lower-income groups would be proportionately less. The details of the improvements would be announced when the new SST Bill is tabled in Parliament during the current sitting."

Will SST Be Cheaper Than GST?

Khairy Jamaluddin

This is easily the most important question for Malaysians, but unfortunately at this point in time, it is impossible to assertively say that prices of goods will go down when SST comes into play on 1 September.

Both tax systems have their pros and cons. GST’s broad tax base not only results in higher collection, it also increases transparency and mitigates leakage thanks to its fixed standard rate – after all, GST is widely implemented in many countries around the world and is lauded as a modern consumption tax compared to SST. On the other hand, SST is a single-stage consumption tax that in theory, means that prices of goods should be lower.

Because of this, there have been suggestions to reduce the rate of GST, instead of reverting to SST. Opposition MP Khairy Jamaluddin suggested that it makes more sense to revise the GST rate instead of reverting to SST, as it is more inefficient than GST. Khairy’s suggestion certainly does not sound as complicated as changing the country’s taxation system, and the reduction in GST rate to match the revenue of SST would, in turn, reduce the impact on cost of living.

Of course, it’s not as black and white. Many practices look good in theory, but fail in reality for various external reasons. Political motivation and poor enforcement are just two reasons that can taint even the most effective of systems.

The country’s Members of Parliament will debate on the implementation of SST next month.


Agree or disagree with this post? Questions? You also have your word!

  • Kingsley Ng

    How can I comments on SST v GST as the methodology is NOT accurate from the point of Finance.

    • Tan Kok Tee

      I agreed with Kingsley Ng... The table show the GST mechanism calculation is not correct. Where is the Input Tax Credit Claims shown in the calculation. In a supply chain from manufacturer to wholesaler to retailer to consumer, a 10% sales tax charge on the manufacture goods company to a GST charge at the final price to consumer, under the GST is slightly cheaper, with the same profit to the business parties.

      • Siemens

        The SST vs GST chart is wrong... Please fact check before posting

        • RinggitPlus

          Hi, Siemens

          The table that you are referring to is an example of the SST and GST calculations circulating online. It is a representation of the paragraph above the image, which highlights the confusion above GST and SST in social media.

          Thanks for the comment and we hope this answer clarifies the confusion.

        • George

          There should be not matter of SST or GST. If the businessman is a basted, things always expensive, because he will use SST or GST to double or triple the selling price. If the businessman is a good guy, he will know how to waive SST or GST.

          • Jeffrey

            For a rakyat and low salary person like me, SST will save my pocket more. Because many things is no charge on SST, compare to GST.

            Even if the same things that got charges between GST and SST, SST still will cheaper when it come to end user in grand total.

            Example: engine oil.
            Import RM 10 +10% = RM 11. Earn rm 10.

            Retailer become RM 21. Earn RM 10

            End user become RM 31.

            I am end user I pay RM 31. Tax collection RM 1.

            GST. Even many complaints didnt receive the claim back tax. But assume we can claim back successfully.
            Import RM 10 + 6% RM 10.60. Earn rm 10.
            Can claim back 60sen.

            Retailer become RM 21.20
            Can claim back become RM 20. RM 20+ 6%
            Earn RM 10.

            End user become RM 30 + 6% = RM 31.80
            End user cannot claim back.

            I pay more in GST. Collection on tax become higher even is 6% because end user tax amount is higher.
            RM 1.8

            Simple Math.
            RM 1 × 10% =

            RM 5 × 6% =

            Which one is higher.

            So I dont know why people praise GST because they said GST 6% is lower than 10% and make poor people more saving. Even I this normal rakyat then holding salary RM 2400 mindset also know how to calculate.
            As a low salary earner, I just want to save my pocket.

            • Ken

              I just notice everything increase for me especially on any single bill when GST in place on 6% and now when we revert back to SST, if someone tell me the price is going to increase again? So, the price increase from without 6% or with 6% + after SST price increase? This is the confusion to me when people keep shouting price will increase especially from some of the ex gov turn opposition.

              So like McD value meal during GST = RM9 + 6% = 9.54

              So, will McD value meal without GST and with SST = RM9 + 10%/6%= 9.90 / 9.54? or will this remain as RM9 instead?

              • Nageswari Narayanan

                May I Know that Bankers Cheque got SST?

                • RinggitPlus

                  Hi, Nageswari Narayanan

                  It is hard for us to give a clear answer to your question. As we speak, the Customs department said it release a finalised list of items and services that will be charged with SST around tomorrow or Thursday. So, we would only be sure about the situation once Customs has released the list.

                  Thanks for the question and we hope helps.

                • Hadzori Umar

                  Where can I get a literature on SST? How it’s implemented?

                  From the receipts posted online it look like SST is just like GST.. only name change

                  • RinggitPlus

                    Hi, Hadzori Umar

                    You can always refer to the Customs Department website for better information on SST.

                    Thanks for the question and we hope this helps.

                  • Apple

                    Hi.. I need advice.. i bought Nasi Lemak from Cafe this morning..
                    Total is $2.40 but they tell me to pay $2.55 as there's $0.15 on SST.. is the calculation correct?

                    • RinggitPlus

                      Hi, Apple

                      Yes, the calculation is correct.

                    • Alice

                      I need clarification...for hotel, does the 6% SST applies or is it Service tax 10% + sale tax 6%?

                      • RinggitPlus

                        Hi, Alice

                        The 10% service charge is not related to the SST as it is charged by the hotels. So, the 10% service charge will remain for the hotels. However, the SST will apply to hotels that make RM550,000 and above.

                        Thanks for the question and we hope this helps.

                      • Joe

                        I'm confused about a restaurant bill. I ate lunch and the cost of the dishes was RM27. The bill contains a line "service charge 10% RM2.70" and a line "service tax 6% RM1.62". The total amount I had to pay was RM31.30. Is it correct for the restaurant to charge both 10% and 6%?

                        • RinggitPlus

                          Hi, Joe.

                          Yes, the restaurant is right on charging 10% and 6% as the 10% service charge is from the restaurant and not from the government. As a result, it is normal restaurants to put a 10% service charge for their own service and the 6% SST as required by the government.

                          Thanks for the question and we hope this help.

                        • kumar Shendre Vishwanath

                          The SST GST Table (best example) is WRONG. SST is right , under GST why are you not showing the input credit?
                          1) SST Total tax is RM 10.6 (10%) collected first time as its single point of tax Vs 2) GST RM 8.29 (6%) collected in several stages