The Malaysian Insight

THE soon-to-be-implemented sales and services tax is not expected to raise the price of consumables, and therefore, will not cause inflation, but loopholes in the previous system will lead to billions in lost revenue as a result of tax evasion.

SME Association of Malaysia president Michael Kang said the previous SST system had many loopholes, and this led to businesses and wealthy individuals getting creative to avoid tax payments. The end result was a weakened tax collection.

He said the government must work at plugging these loopholes, and properly enforce the system so as to not affect Malaysia’s tax base, which will be much smaller following the zero-rating of the goods and services tax last month.

“A lot of tax experts have suggested that the government combine aspects of SST and GST to reduce incidents of tax evasion,” he told The Malaysian Insight.

Critics of SST have warned that with only 2.27 million taxpayers out of the country’s 15 million workforce, at least RM20 billion in taxes is expected to be foregone this financial year.

Finance Minister Lim Guan Eng previously said the government hoped to collect RM21 billion from SST, half of last year’s RM42 billion from GST.

In 2014, the government collected only RM17 billion from SST.

However, Kang said, if the new SST system is well-enforced, the Pakatan Harapan government stands to collect between RM30 billion and RM35 billion.

Federation of Manufacturers Malaysia president Soh Thian Lai believes that GST is “a fairer tax system” that prevents tax evasion more effectively than SST.

But, he said, the former Barisan Nasional administration should have started with a lower GST rate of 4%.

“GST is a fairer system. Those who spend more, pay more (tax).

“The benefit of GST is that tax is collected at every level, whereas SST, it’s only at one level,” Soh told The Malaysian Insight.

However, he conceded that if the SST system is properly enforced, the price of consumables and the inflation rate are unlikely to increase.

“SST is targeted at specific goods, not all consumables. It won’t lead to inflation, like GST.”

He said only imported goods, such as electronics and household electrical items, will see a rise in prices.

Both Soh and Kang welcomed the fact that SST is set to improve manufacturers’ cash flow.

Under the GST system, manufacturers paid the tax first and claimed the sum from the Customs Department later.

“Business owners had to wait six months to get the GST refund,” said Kang.

“When they faced cash-flow problems, they were caught in a bind, where they didn’t know when to expect a refund from Customs.”

Federation of Sundry Goods Merchants Association of Malaysia president Hong Chee Meng said the government must clarify with grocery store owners whether essential goods, like cooking oil, salt and noodles, will remain tax-free.

“Most of the goods sold in sundry stores are controlled goods, but some are not. It’s best if the government can provide a clear list of taxed goods.

“A 10% SST on some food items could have a big impact on consumers. So, the government must consider whether the tax is necessary, so that it won’t add to the people’s financial burden.”

He urged the government to consult businesses before re-implementing SST.

“There is still about a month left before September. I hope the government can inform sundry shop owners and consumers of the details, so that we know how to handle the tax.” – July 20, 2018.