Malaysia SST: What are the changes?
From 1 September 2018, the Sales and Services Tax (SST) will replace the Goods and Services Tax (GST) in Malaysia.
Here are the details on how the SST works - the registration process, returns and payment of the SST and the transitional measures to take after the abolishment of the GST.
(i) The SST will be a single-stage tax, where the sales ad valorem tax is charged upon taxable goods manufactured and sold by a taxable person in Malaysia and taxable goods imported into Malaysia. Service tax is charged on taxable services provided in Malaysia and not on imported or exported services;
(ii) taxable persons are defined as manufacturers of taxable goods or providers of taxable services with annual turnover exceeding MYR 500,000. A taxable person is also a person who provides taxable services (e.g. hotel, insurance, club, gaming, telecommunication, legal, accounting, architectural, security, etc) in the course of furtherance of business in Malaysia and is liable to be registered or is registered under the Service Tax Act 2018;
(iii) sales tax will be imposed at the rate of 5%, 10% or a specific rate for petroleum products and the service tax will be at the rate of 6%;
(iv) SST returns are required to be submitted on a bi-monthly basis to RMCD (Royal Malaysian Customs Department);
(v) registered persons are required to keep relevant records of SST submissions for a period of 7 years, (a) in Bahasa Melayu or English, (b) in Malaysia except permitted by DG (Director General) to be kept outside Malaysia, and (c) in soft or hard copy;
(vi) where services span over both the GST period and the Services Tax period, the invoicing for the services must be apportioned between the 2 periods (i.e. before 1 September and from 1 September onwards).
SST: The finer details
Registration process for GST and non-GST registered persons
For both GST and non-GST registered persons, the registration for the SST has to be done online through MySST system. Existing GST registrants are automatically ceased to be liable for registration under the GST when the GST Act 2014 is repealed. They are not required to apply for deregistration, but they are required to submit the final GST return within 120 days from the Act being repealed. The existing GST registrants who are automatically liable to be registered under the SST will be informed through a notification letter on the personal/business email starting from 1 August 2018.
Registration done through the MySST system is auto-approved within 24 hours for GST registrants however, if a verification process is required, it may take a little longer. The company can proceed with the voluntary registration provided it is manufacturing taxable goods and is below threshold. If the person is exempt from registration, they can proceed with voluntary registration.
Process to submit Sales Tax returns
Registered manufacturers and persons must declare SST returns (SST-01) every two months according to the taxable period. They may apply to the Director General for a specific taxable period (e.g. in line with the financial year end). SST return has to be submitted no later than the last day of the following month after the taxable period has ended in order to avoid any penalty (10% first 30 days period, 15% second and third 30 days period, 40% after 90 days).
SST returns have to be submitted electronically or by post to SST Processing Centre, and has to be submitted regardless of whether there is any tax to be paid or not.
GST registrants are allowed to claim input tax credit within 120 days from when the SST goes into effect. GST registered persons must account for GST at 0% and declare the output tax in their final GST-03 return. Special schemes under GST such as Approved Trader Scheme (ATS), Approved Toll Manufacturer Scheme (ATMS), etc. are not applicable under SST. After 1 September 2018, audits for closure purposes will be carried out on GST registered entities.
Goods and services exempt from payment and facilities under SST
- Exemption on goods and persons
(i) Goods: e.g. live animals, unprocessed food, vegetables, medicines, machinery, chemicals, etc. List of exempted goods can be found here.
(a) Class of person, e.g. Ruler of States, Local Authority, Inland Clearance Depot,
(b) Manufacturer of specific non-taxable goods, with exemption of tax on the acquisition of raw materials, components, packaging to be used in manufacturing activities,
(c) Registered manufacturer, with exemption of tax on the acquisition of raw materials, components, packaging to be used in manufacturing of taxable goods.
- Exemption from registration
Manufacturing activities exempted from registration regardless of turnover, e.g. tailor, jeweller, optician, engraving, vanishing table top, etc.
- Special treatment for specific areas
Applicable to designated areas such as Labuan, Langkawi and Tioman, and special areas such as Free Zone, Licensed Warehouse, Licensed Manufacturing Warehouse and Joint Development Area.
- Contra System
A registered person is allowed to deduct the service tax in his return for any cancellation and termination of services or any other reasons as reducing premiums or discounts.
Updated on 20 August 2018
Service tax – taxable services proposed
On 8 August 2018, the Royal Malaysian Customs Department (RMCD) issued a list of proposed taxable services for service tax purposes. The list also provides a comparison of the taxable services and registration thresholds between the old service tax regime and the upcoming regime. The taxable services are summarised as below.
Reinstated service providers and services liable for service tax:
- With respect to accommodation providers, night clubs, public houses, beer houses, health or wellness centres, massage parlours, private clubs, golf clubs and driving ranges:
- all services, including sales of food, drinks and tobacco products
- With respect to restaurant operators, caterers, food court operators, etc.:
- all services, including prepared or served food or drinks;
- sales of tobacco products; and
- sales of alcoholic and non-alcoholic drinks
- With respect to telecommunications and paid television service providers:
- telecommunications and related services other than the provision of services to other telecommunications providers; and
- paid television broadcasting services
- With respect to advocates, solicitors and shariah lawyers:
- legal services and other charges in connection with such services
- With respect to public accountants:
- the provision of accounting, auditing, bookkeeping, consultancy and other professional services and charges related to such services
- With respect to parking operators:
- the provision of parking spaces for motor vehicles
- With respect to advertising:
- the provision of advertising services in Malaysia
- With respect to credit card and charge card service providers regulated by Bank Negara Malaysia:
- a flat rate of MYR 25 is imposed on the issuance of principal or supplementary cards and every subsequent year or part thereof; and
- the flat rate is not applicable to fuel cards and charge cards issued in a closed community (i.e. educational institutions or sports clubs)
Newly introduced service providers and taxable services under the new regime
- With respect to betting and gaming providers:
- sweepstakes, lotteries, gaming machines or games of chance;
- tournaments involving betting or games of chance; and
- conducting or allowing the conduct of card games or any other games by a casino operator
- With respect to transmission and distribution of electricity:
- electricity provided to domestic consumers for usage of more than 600 kWh (i.e. the first 600 kWh is exempt) for a minimum billing cycle period of 28 days
- With respect to airline operators licensed under the Malaysian aviation regulations:
- domestic passenger air transport services and all services in connection with such services, with the exception of air transport routes specified under the Rural Air Services Agreement
- With respect to information technology services providers:
- all types of IT services, excluding sales of goods in connection with the provision of services and provision of IT services outside Malaysia
In general, service providers rendering taxable services are liable to be registered if the total annual amount of taxable services provided exceeds MYR 500,000. The registration threshold is MYR 1,000,000 for restaurant operators, caterers, food court operators, etc.; no registration threshold is imposed for credit card and charge card service providers.
Full details are available on the RMCD's website.