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Impact of SST on Malaysia’s Economy

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With Pakatan Harapan’s win over the GE14 Elections, the return of the Sales and Service Tax (SST) after the 3-year implementation of Goods and Services Tax (GST) had been widely discussed. It was one of the most memorable promises made by the new Prime Minister, Mahathir Mohamad, to Malaysia’s citizens.

With GST’s implementation that caused many financial problems for business owners and the people of Malaysia, many are wondering how would SST affect the economy of Malaysia? What does this mean once GST is rendered zero-rated and SST has returned to the fore?

The most commonly discussed worries among Malaysia’s citizens is whether this change of Tax system through the replacement of GST with SST would cause an increase in the price of goods.

This concern was raised after Edaran Tan Chong Motor (distributor of Malaysian Nissan vehicles) in which Christopher Tan, the company’s marketing director stated that cars may be more expensive when SST is reintroduced.

 

Will the Prices of Goods increase or decrease after the removal of GST?

The reintroduction of SST will see lower prices of goods in general, but there could be a potential spike in some items, including the cost or charges for services rendered. Sales Tax is based on the manufacturing cost or import cost of goods and if it was based on the earlier tax rate of up to 10%, then the prices of goods will drop.

Tax consultant Yong Min Jie reflected that this is good for consumers unlike GST, that caused a hike in prices of goods. However, if SST covers a wider range of services, there could be a higher charge for services rendered.

It is still noted that the total cost of implementation of SST would be less than GST, which included the relevant upgrading of systems. This would mean that the reintroduction of SST would make up for the shortfall in government revenue.

 

To summarize:

 

Increase in Prices

1) Car prices – Car prices are expected to rise up and be higher than the GST price by approximately 2-3%. However, this depends on potential demand, and the possibilities for auto players to absorb the cost.

2) Groceries, Household Items, Car-related Products – If government introduces the same SST system used before, the total tax burden will increase from 0% to around 10%.

 

Decrease in Prices

1) Food and Beverage, Retail Shop – Clothing, cosmetics, and gadgets retail shops’ prices will be slightly lower around 3% from the savings of input costs.

2) New properties – New houses are expected to experience a slightly cheaper price from reduced input costs.

 

Conclusion

 To conclude, the replacement of GST with SST is expected to bring about more disposable income, that will boost consumer spending and business activities. Adequate disposable income will also spur private consumption and business activities.

Overall, the tax burden will be reduced by an estimate of RM10 billion-RM15 billion. This amount is the result of overall increase in disposable income for consumers. The price impact depending on the types of goods and services will vary by income groups according to what they consume.

During this period of change of tax system, there will be opportunities for non-compliance and profiteering. Since prices are reducing, it is significant that monitoring and enforcement activities are carried out effectively.