- 6 months ago
As Malaysia expands the scope of its Sales and Service Tax (SST), Deputy President of the Chartered Tax Institute of Malaysia, Alan Chung, discusses how newly affected sectors are preparing for compliance, the exemptions SMEs should know, the impact on manufacturing sub-sectors, and the broader economic implications of maintaining the current SST rate amid global and domestic pressures.
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00:00As Malaysia broadens the scope of its sales and service tax SSD,
00:04businesses across newly affected sectors are facing a pivotal moment.
00:08From compliance readiness to cost management, the transition is raising urgent questions,
00:13particularly for small and medium enterprises or SMEs,
00:16and manufacturers already grappling with global economic headwinds.
00:20So to help us unpack these developments, we're joined by Alan Chung,
00:23the Deputy President of the Chartered Tax Institute of Malaysia, or CTEAM.
00:26Thank you so much for joining me in the studio as well instead of the online session.
00:33But if we could start the discussion, if you can shed light to us
00:38on how does this newly affected business or sectors is preparing for the compliance
00:42and what support mechanisms are available to ease the challenges for them?
00:49Well, in the first place, the expansion of the SST are going to affect a lot of businesses
00:55that are existingly affected, so they will know how to navigate this.
00:59For new businesses and new sectors that are newly affected,
01:02they have a number of ways to go and address this.
01:05First, they can do self-help.
01:07They can go to the MySST portal, which is a portal provided by the customs
01:12that has got a number of guidelines and FAQs on the implementation of SST.
01:17Secondly, if they are still unclear on the guidelines and how to navigate that,
01:22they can actually contact the customs.
01:24Customs has provided dedicated SST helplines for them to go and call and ask about these questions.
01:31And of course, lastly, you have consultants who are readily available out there
01:35to go and review their circumstances and how this SST expansion will affect them.
01:42But when we talk about SMEs, those small media enterprises,
01:46when they hear about SST and the new SST, it's actually a bit confusing for them.
01:51But are there any, you know, exemptions or also thresholds that SMEs should be aware of
01:56that can actually avoid them from being taxed unnecessary?
01:59Sure.
02:00There are a number of exemptions as well as exclusions, as we call it.
02:06As far as SST is concerned, when the government look into this,
02:10the government has actually looked into providing the minimum impact to the men on the street,
02:15the right yard is, for instance.
02:17So there are a number of exemptions that has been granted in order to go and elevate
02:22or eliminate the possibilities of this impact to the right yard.
02:27First and foremost, we need to go and look into this in two separate issues.
02:32SST is a common name that we call sales and service tax,
02:36but I don't call it sales and service tax.
02:37I call it a sales tax and service tax.
02:40The reason being is that these are two completely separate taxes.
02:43So that is a fundamental item that we need to be aware of.
02:47In terms of sales tax, sales tax, the biggest issue is that a lot of businesses
02:53do not understand that they have exemptions.
02:56Sales tax has been granted an exemption on the purchases by a registered manufacturer
03:02so that their inputs do not have any sales tax.
03:05And subsequently, they only charge sales tax on the one stage when they sell it onwards by the manufacturer.
03:12So the first thing here is that if you are a registered manufacturer,
03:16the impact to you is negligible because most of your inputs and raw materials,
03:21you are entitled to an exemption of sales tax.
03:24Secondly, on the issue of that of service tax,
03:30well, we have got five areas for service tax expansion.
03:34By and large, the impact that two areas will have on businesses
03:40are that of the expansion of service tax onto financial services.
03:45And next is on rental because most businesses will incur rental.
03:49They don't have their own premises.
03:51There are still exemptions.
03:52The exemptions have been granted to MSMEs who are smaller.
03:57They are not going to be subjected to tax.
04:00They need to understand they need to go and register in a portal called MyPMK.
04:04When they register in MyPMK, the landlord theoretically have to go and check MyPMK.
04:10If they are registered under MyPMK, the landlord need not charge them any SSD on rental.
04:16So that is one fundamental one that they need to go and understand
04:20and need to register as soon as possible.
04:22But when it comes to this SST, expanded SST,
04:27what or which manufacturing sub-setters are actually most vulnerable when it comes to this
04:31and how is this going to be affecting Malaysia's export competitiveness as a whole?
04:36I would think that the sector that will be most affected will be the MSMEs
04:41because you are looking at smaller manufacturers who possibly are not liable to be registered.
04:48That's number one.
04:49And number two, due to their size, they may not be hiring consultants or advisors
04:55who can advise them appropriate measures, advise them or the exemptions they are entitled to.
05:01So they don't know how to navigate this.
05:03So I think the most vulnerable is the micro SMEs.
05:07In terms of Malaysians' competitiveness toward exports,
05:12I would think that the effect will be negligible because, as I mentioned,
05:16you do have an exemption on the inputs of raw materials to manufacturers.
05:21Now, the manufacturers who predominantly export are going to be larger.
05:27They will have on board with them advisors or in-house financial managers
05:33who are well-versed with the application of sales tax as well as the exemptions that are available.
05:39So they can actually get these exemptions.
05:42They are not likely to be increasing their prices.
05:46So, to me, I do not think that will be a significant impact in terms of our export competitiveness.
05:54Those are the sectors that are most vulnerable, like you mentioned MSMEs.
05:58But can actually these manufacturers pass or is it even allowed to pass the added cost towards customers?
06:05And also, how is it going to lead to margin compression and also reducing investment?
06:10Yeah. The thing here is that the businesses are likely to pass on the cost.
06:16If there is an increase in the cost of goods sold, they will embed it and increase it.
06:23But the question here is that how is these businesses or manufacturers affected?
06:28The impact varies greatly, right?
06:31So if you are renting predominantly, you get the service tax on your rental.
06:36But renter is just one component of your cost.
06:39The composition of your cost varies very greatly.
06:42So you are having the service tax with a small amount onto your rental.
06:49The businesses will have to go and do an impact analysis to see how much is the cost increasing before they pass it on.
06:57Now, I would think that if the cost increase is negligible, they will probably absorb it.
07:03This will result in margin compression, as you mentioned.
07:05But if the effects, the impact on the cost is high, and when they do the impact analysis, they will probably increase the prices.
07:15As to how this will increase, I think it will vary from business to business, manufacturer to manufacturer.
07:20But, Lu, are there risks of double taxation or overlapping tax obligations for businesses operating across multiple sectors or perhaps jurisdictions?
07:30Sure.
07:31Well, in the perfect world, there should not be any tax on tax.
07:36But here you are speaking to me instead of a six-foot hunk with muscular and athletic body frame, right?
07:41So there you have, there is always a chance on tax on tax.
07:45Sometimes it is a tax on tax by the effect of sales tax crossing over to service tax and vice versa.
07:52You cannot eliminate it.
07:54I've got to go and say that the government has tried their best to do consultation.
07:59A lot of areas have been discussed prior.
08:02They had actually expected this.
08:05But there will be certain areas whereby there will be tax on tax effect.
08:10The government is aware of this.
08:12And whenever that is identified, the government will try to address this by introducing new exemptions.
08:18As you can see, there have been certain exemptions that have been granted subsequently.
08:22Some people will term this as U-turn by the government.
08:25But sometimes it is necessary because you cannot cover all the areas.
08:30And sometimes something is a phase later.
08:33That's where the government introduces new exemptions.
08:37So that's where you have got an evolving application of sales tax and service tax.
08:42I would say this is just part of the start actions for the Orang Kata,
08:47or the formation of the country's government's actions.
08:51But is there a possibility of future SST readjustment or perhaps further scope expansions?
08:56And how should businesses prepare for such diversions or difficulties?
09:00I would think that it is inevitable that we have SST expansion because in terms of SST,
09:07we call this as a narrow tax, which means that only selected ban of taxes are covered,
09:13unlike that of GST or VAT regimes where we call it as broad-based tax.
09:18Now, one of the problems we have and we are trying to address as a nation
09:23is that we are supposed to broaden our tax base.
09:26That's number one.
09:26And number two, we need to go and increase our tax revenue in order to go and have a better physical position.
09:34Malaysia has got one of the lowest tax-to-GDP ratios.
09:39This has been mentioned many times.
09:41And SST expansion is just one of the areas that we have to go and implement.
09:46Whether we implement it on a gradual basis or we implement it something else is all to be a matter of policy.
09:54But we need to go and broaden the base of what we have in SST right now because it's very narrow.
10:01Only selected services are subjected to tax.
10:04We have got a positive list instead of a negative list in that of GST.
10:07So, we need to go and expand that.
10:10I think it is inevitable that the scope of SST will be expanded in the future if GST is not brought back in.
10:17But we have about two minutes left and looking at the current global geopolitic tensions right now,
10:23the rising global tariffs and also domestic cost pressures.
10:26Let's say if we actually maintain the current SST,
10:29what could be the short and also long-term effects towards these manufacturers and businesses?
10:34I think I will address this on a more macro basis.
10:40People think of the SST as a problem.
10:43I would think it is as a solution.
10:45Because when you have the global uncertainties, the tariffs coming in,
10:50we need to have a better physical position in order to address any uncertainties that comes in.
10:57The reason being is that the uncertainties have been shown to be very, very unpredictable.
11:02If we don't have a strong physical base, we don't have the revenue to cover this,
11:08we will not be able to address it.
11:09So, it is important that we have got a larger revenue base in the form of increase in SST
11:15so that we can address any uncertainties to come forward.
11:18I would like to say thank you so much to Alan Cheung,
11:22the Deputy President of Chartered Tax Institute in Malaysia,
11:26for helping us understand how this expanded SST could impact the SMAs and manufacturers as a whole.
11:33And this is part of the national fiscal formations that's going to give a good impact
11:39to the whole national organisation as well.
11:43So, thank you so much again, Alan Cheung,
11:45and we can find this whole discussion on all of our social media platforms,
11:49and that includes astroawani.com.
11:51Thank you very much.
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