Hybrid GST-SST model gains support as prime minister rules out return of GST
Malaysia’s debate over the future of indirect taxation continues to evolve, including if the existing Sales and Services Taxes should be re-replaced by a Goods and Services Tax (which was in place 2015-18).
SST is a cascading consumption tax, with no credit or offset like VAT / GST.
Prime Minister Anwar Ibrahim’s recently commented that the government is open to adopting selected GST features within the existing SST regime, the Bumiputera Retailers Organisation (BRO) has backed a measured approach rather than a simple choice between GST or SST.
BRO said GST’s input tax credit mechanism reduces cascading tax, but warned that any reforms must avoid increasing living costs or imposing excessive compliance burdens on businesses. If GST is eventually reintroduced, it recommends a low initial rate, protection for essential goods and an efficient refund mechanism.
OECD backs return of GST
This follows recommendation on 27 August 2024 from the Organisation for Economic Cooperation and Development (OECD) that GST would broaden and stabilise the tax base, and help the government cope with the economic shock of the COVID-19 crisis. It would also limit the cascading – compound taxation – effect on businesses of the current irrecoverable SST. The OECD suggested that Malaysia look into bringing back the GST in stages as one of the ways to increase revenue.
How Malaysia fell out of love with GST the first time (2015 to 2018)
SST applies to less than 100,000 companies, but GST covered almost half a million traders, giving a more reliable and larger tax base. However, final sale-only SST was felt to be simpler to administer than mult-stage GST. GST also failed to stop the rising government debt problem – a promise for its introduction. As a result, the new GST become unpopular and was blamed for rising prices following its 2015 introduction. This led to its withdrawal in June 2018 following election commitments by Pakatan Harapan.
Feb 2023: Prime Minister rules out return to Goods & Services Tax to replace Sales and Services Tax
PM Anwar previously in February 2023 confirmed there are no plans to return to Goods & Services Tax (‘GST’). Following a review to scrap the existing Sales and Services Tax for a second time, the government has shelved the idea due to inflation fears. Instead, the short term focus will be on cutting governmental subsidies.
176 countries have a VAT or GST regime.
