25th January 2019 - 4 min read
UPDATE 17 July: The government has confirmed that the SST tax rate will be set at 10% for sales and 6% for services. Our new article breaks down the facts and figures behind the switch from GST to SST.
It’s been a week since the GE14 elections and what a time it is indeed to be alive. One of the things that have been widely discussed is the return of the SST after a 3-year implementation of GST. First mentioned in the Pakatan Harapan (PH) manifesto, it was one of most memorable PH promises to voters, in which they will sought to replace the GST with SST within 100 days of winning the 14th General Election.
But in truth, what does this spell for consumers once the Goods Service Tax is rendered zero-rated and that the Sales and Service Tax has returned to the fore?
Perhaps one of the most commonly discussed worries among the people of Malaysia is whether the directive of making the Goods Service Tax zero-rated to pave away for the return of GST would play a role in increasing the price of goods.
This concern was raised by Edaran Tan Chong Motor (distributor and assembler of Malaysian Nissan vehicles) in which Christopher Tan, the company’s marketing director, stated that cars may be more expensive when the Sales and Services Tax (SST) is reintroduced. He also added that the industry could see higher car prices if the return of SST is based on the previous calculation formula in the Service Tax Regulations 1975.
Having said that, one needs to keep in mind that the original goal of the GST is that it is a value-added added tax that is used to replace all the indirect taxes levied on goods and services by the government. This aim of having a single, unified tax is to strengthen the economy while lowering the costs of business owners. More reasons for the implementation of the GST can be read at the official GST website and right now, you may be wondering, what has happened since the implementation of GST in Malaysia?
According to the Edge, the introduction of the goods-and-services tax in April 2015 caused a spike in inflation to 4.2 percent in early 2016, even after the allocation of handouts by the government for low- and middle-income residents to help offset the bigger tax bills. So yes, in theory it is expected that GST will be beneficial for consumers as the manufacturing costs is supposed to be absorbed by the producers.
Moving forward to 2018, with the Goods Service Tax nullified, Bank Negara Malaysia expects the prices of goods and services to drop. Bank Negara governor Muhammad Ibrahim said that it was important for the relevant authorities to ensure that businesses passed the benefits to the public at large. Aside from that, he also commented that the move will have an impact on inflation but it is too early to calculate the inflation rate at the moment.
“The inflation rate for the first quarter is set between 2% and 3%, but with the information coming in, we will look at it again. If need be, we will revise the rate”
So yes, while there are multiple opinions as to how rendering the GST zero-rated would affect the price of goods and services in general in Malaysia, what’s for certain is that The Malaysian economy, measured by the indicator gross domestic product (GDP), has grown by 5.4% year-on-year in the first quarter (1Q) of 2018, owing to the continued expansion in private sector activity and strong support from net exports, according to BNM.
With a stronger ringgit exchange rate in 2018, this translates to a possibility for increase in purchasing power among Malaysians. Still, it remains heavily debated in different social circles as to whether this zero-GST move would be able to support the Malaysia’s debt-to-GDP ratio of 50.8 % although the Finance Ministry has assured that the higher oil prices now will provide a buffer for the immediate future.
Still, it has only been one week since the change of governance took place. With new policies and the return of subsidies in place, it is only a matter of time before we start to witness the fascinating changes and transformation that the new Malaysia is experiencing. Need a crash course on what is Sales and Service Tax all about and how did it all happen? Don’t forget to check out our blog for all things related to GST, tax and of course, top financial tips that will help you get more for your money.
Have anything to say about the return of the Sales and Service Tax? Let us know in the comment section below.
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