This year, the Ministry of Finance reintroduced the Sales and Service Tax (SST) in place of the Goods and Services Tax (GST). The enhanced version, dubbed SST 2.0, took effect on 1 September 2018. More than a month after its implementation and despite being a reintroduction of a previous tax system, many in the market are still unsure how to react.
'Do I freeze my investments?'
'How different is it from the old SST?'
'When will the dust settle?'
Uncertain times may call for uncommon approaches. Here are some pointers from our tax team. But first, let’s take a look at the areas of enhancements in the new tax model before we discuss the opportunities going in.
The new tax model is fundamentally the same Sales and Service Tax introduced fifty years ago, but with enhancements in a number of areas designed to boost production, consumer demand and the economy.
The Sales and Service Tax maintains the single-stage principle where tax is only imposed on the manufacturer and importer for goods sold, and on the consumer for services provided. However, the transfer of pricing does occur and gets passed down the supply chain.
Sales Tax at 5% or 10%.
Sales Tax between 5% to 10% remains reviewable
Rates currently reviewable based on feedback from businesses.
Service Tax at 6%.
RM50 for principal credit/charge card and RM25 for supplementary credit/charge card imposed on an annual basis.
Service Tax at 6% remains reviewable.
RM25 for both principal and supplementary credit/charge card imposed on an annual basis.
Rates currently reviewable based on feedback from businesses.
Registration threshold varied according to types of businesses.
Single general threshold of RM500,000 for most businesses.
Same registration threshold as the GST model but remains reviewable. Aimed at exempting smaller industry businesses such as SMEs.
Restaurant business threshold varied depending on the location of the business:
No minimum threshold if located in hotel more than 25 rooms.
RM300,000 threshold if located in hotel less than 25 rooms.
RM3 million for restaurant located outside of hotel.
Restaurant business threshold of RM1.5 million for all types of restaurant business.
Scope of restaurant business expanded to include cafe, catering, take-away, food truck, retail outlet and hawkers.
Lowered threshold for restaurants and closing loopholes in the previous SST.
Hotel business includes any taxable person operating one or more hotels having more than 25 rooms.
Hotel business scope expanded to include lodging house, serviced apartment, homestay, bed and breakfasts, inn, resthouse and boarding house, of any number of rooms.
Closing loopholes previously apparent in the previous SST.
Only credit notes issued for goods returned or discount subsequently given are allowed for sales tax deduction via the sales tax return.
Credit notes and debit notes are generally allowed to be issued by the Registered Manufacturer/Service Provider and make adjustment in returns.
To alleviate cashflow.
A reactionary measure to the
GST model which failed to refund majority of businesses over its course.
Upgraded to align with actual business practices.
Input costs including raw materials, components and packaging are tax-free.
Designated Area exemptions
Special Area exemptions
Designated Area exemptions
refer to Labuan, Langkawi and Tioman. Special Area exemptions refined for export manufacturers.
Exempted from sales tax except Petroleum
Special Area exemptions
include the free zone, licensed warehouse, and licensed manufacturing warehouse and joint development area.
Enhanced to keep manufacturers competitive in the global market.
B2B Insurance excluding certain insurance in relation to export of goods.
Scope of insurance expanded to cover all B2B products excluding certain insurance in relation to export of goods; and all B2C products excluding life insurance or family Takaful policies, and medical insurance or medical Takaful policies.
Medical and life insurances exempted. Export insurance exempted.
Medical providers, medical products and consultation exempted.
Medical supplies and services exempted.
Night club, private club and golf club with threshold of RM300,000 for private club and golf club. Not specified for night club, health centre, massage parlour, beer house, dance hall etc.
Night club, private club and golf club with threshold of RM500,000 for these businesses.
Gaming now taxable, and includes casinos, gaming machines, sweepstakes, lottery, games of chance and betting.
Electricity, IT services, domestic flights including helicopter services, and car rentals now taxable.
Luxury items and services now taxable.
Source: Deloitte, Sales Tax and Service Tax ("SST") Framework - Deloitte Analysis and Views, 19 July 2018.
At the end of the 3-month ‘tax holiday’ and the beginning of a new tax model, consumer spending behaviour will normalise and move cautiously with the new prices of goods and wages. In spite of a new tax model made to boost spending, the enhanced SST model may not promise high spending power just yet, so retail and consumer stocks are not the best buys at the moment. Stocks that remain the least volatile are those least affected by the new SST—they are export-oriented or less dependable on the imports market.2
Despite the newly-announced Service Tax on domestic flight tickets, airports and fleets have reported positive passenger growth into as far as the third months of SST implementation.
Watch market sentiments closely. They are unstable due to external factors and ‘price correction’ events may suddenly present buying opportunities. What’s more certain would be the one or two consumer spikes over the year-end seasonal spending spree.2
Unit trusts and financial planning products such as life insurance and medical insurance purchased by individuals are not subject to the SST.1 While luxury items and services are now subject to the SST1 and made less attractive, your disposable income could now go into investing in better health and coverage for your family members. Take it as a refocus from expensive indulgence to personal well-being—which leads to happiness just the same.
The new tax model’s enhancements are meant to incentivise manufacturers and drive growth.3
Study the areas related to your industry to take full advantage of exemptions as well as cost-saving facilities and processes. Meanwhile, a larger number of service providers and professional services previously registered under the GST no longer fall within the scope of taxable services and are automatically exempted from Service Tax.3, 4
You’d have the most to gain as a Small-to-Medium-sized Entrepreneur. Because the SST framework exempts distributors and retailers, it simplifies your administrative process and frees you from compliance requirements, thus greatly reducing your business costs.5
In line with the single-stage tax principle, all manufacturers big and small are entitled to tax-free input of raw materials, components, packaging and so on. Agricultural-based producers, for example, can look forward to exempted material costs such as fertiliser, even tractors and fishing boats.6
If you are a manufacturer of goods for export, you can benefit from the weak ringgit as well as SST exemptions to diversify your product range and expand. With the new tax model’s exemptions for B2B services such as export insurance and overseas R&D, the opportune time is now.
Third months into the implementation of the SST, an appeal from the local photography industry resulted in the reduction of tax on cameras and accessories by half.7 The Ministry of Finance has been open to review items and rates based on incoming industry feedback—and still is.8 So if you feel your industry or business deserves a better rate or basket of exemptions, take full advantage of the government’s decision to remain open to reviews and changes. Your feedback matters and can help shape your business, whether as an individual company or a representative of your industry.
Clarifications on vague areas such as disbursements are still pending from the Royal Malaysian Customs Department.9 Be wary of unreliable sources and rumours on social media. Instead, keep abreast with the latest announcements and read up on details made available by the Royal Malaysian Customs Department at its official website on the SST at mysst.customs.gov.my
The market is uncertain, but things should become much clearer towards the end of the transition tunnel. Not all areas of the SST were discussed here. You should take time to go further into detail in the areas of the SST specific to your industry, to be able to fully utilise the benefits of the new tax model. Also, stay tuned to the upcoming Budget 2019—our tax team will once again offer an overview and some insights.
Keep in mind, every part of your business or investment portfolio should be taken into account before making decisions. When you are ready, arrange a time with your certified Relationship Manager for further consultation on wealth management.
Sources: 1 Royal Malaysian Custom Department, MySST, 15 October 2018. 2 The Edge Markets, Valuation already ‘stretched’ for consumer stocks, 18 September 2018. 3 The Edge Markets, MoF: New SST will involve less manufacturers than GST, 7 August 2018. 4 The Star Online, No SST for essential items, 20 July 2018. 5 The Edge Markets, Tax: SMEs welcome the return of SST, 13 July 2018. 6 Malay Mail, Doctor’s fees, baby formula among SST-exempt items, says Guan Eng, 19 July 2018. 7 The Star Online, SST on cameras reduced to 5%, says Guan Eng, 16 September 2018. 8 The Sun Daily, Post-implementation changes to SST must be handled well: Experts, 3 September 2018. 9The Edge Markets, More time needed to grasp SST 2.0, say businesses, 23 August 2018.
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