Malaysia: Zero-sales tax paradise for just three months

After effectively scrapping the unpopular six-per cent goods and services tax (GST) on June 1, Malaysia’s new government will re-introduce a refined sales and services tax (SST) in September, giving its citizens a break of just three months from such a general tax.

Abolishing the GST was one of the key promises of Prime Minister Mahathir Mohamad’s election programme, but the high level of debt he inherited from the previous administration doesn’t allow to uphold a fully sales-tax free environment as Malaysia is forced to take drastic short-term steps to restore fiscal strength.

Mahathir said there are plans to set the SST rate to ten per cent. The difference is that the GST covered most products and services and was imposed at each level of the supply chain, while the former SST was limited to manufacturing and services and was only imposed at one level.

As to how a “refined” SST could look like remains unclear. The former SST, which was replaced by the GST in 2015, had a varying rate of between five and 25 per cent, depending on the goods and services it covered.

The shortfall in Malaysia’s budget could merit a widening of the scope of goods and services that would be subject to SST, accountants say. The country’s current debt totals one trillion ringgit ($251 billion), and the GST accounted for income of about 42 billion ringgit annually. Even if the base of the SST is widened, it isn’t expected to bring in that much, which is a tricky situation for the new government given its election pledges of further reducing living costs and restore fuel subsidies.

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After effectively scrapping the unpopular six-per cent goods and services tax (GST) on June 1, Malaysia’s new government will re-introduce a refined sales and services tax (SST) in September, giving its citizens a break of just three months from such a general tax.

After effectively scrapping the unpopular six-per cent goods and services tax (GST) on June 1, Malaysia’s new government will re-introduce a refined sales and services tax (SST) in September, giving its citizens a break of just three months from such a general tax.

Abolishing the GST was one of the key promises of Prime Minister Mahathir Mohamad’s election programme, but the high level of debt he inherited from the previous administration doesn’t allow to uphold a fully sales-tax free environment as Malaysia is forced to take drastic short-term steps to restore fiscal strength.

Mahathir said there are plans to set the SST rate to ten per cent. The difference is that the GST covered most products and services and was imposed at each level of the supply chain, while the former SST was limited to manufacturing and services and was only imposed at one level.

As to how a “refined” SST could look like remains unclear. The former SST, which was replaced by the GST in 2015, had a varying rate of between five and 25 per cent, depending on the goods and services it covered.

The shortfall in Malaysia’s budget could merit a widening of the scope of goods and services that would be subject to SST, accountants say. The country’s current debt totals one trillion ringgit ($251 billion), and the GST accounted for income of about 42 billion ringgit annually. Even if the base of the SST is widened, it isn’t expected to bring in that much, which is a tricky situation for the new government given its election pledges of further reducing living costs and restore fuel subsidies.

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