GST vs SST: Difference Between GST & Sales and Service Tax in Malaysia

Malaysia replaced the multi-stage Goods and Services Tax (GST) with the single-stage Sales and Services Tax (SST) in 2018 to simplify compliance, ease consumer burden, and address administrative issues linked with GST despite reduced government revenue potential.

This article aims to explain the core difference between GST and SST, highlight the administration, categories of taxable goods and services and evaluate which system resonates well with the Malaysian economic canvas.

Key Takeaways

• GST was a broad-based, multi-stage tax applied across supply chains, while SST applies only once, either at manufacturing or service provision.
• SST currently imposes sales tax at 5% or 10% and service tax at 6%–8%, compared to GST’s flat 6% (with some zero-rated essentials).
• GST allowed full input tax claims and zero-rated exports, while SST provides limited export relief and fewer offset opportunities.
• GST generated higher government revenue, but businesses faced strict compliance and refund difficulties; SST offers simpler administration.
• SST covers narrower categories of goods and services, while GST taxed almost everything except specific exemptions.

What is GST and SST in Malaysia?

GST (Goods and Services Tax) in Malaysia was a multi-stage tax imposed on the supply chain process which included the production and distribution stages.

Conversely, SST (Sales and Services Tax) is a single-stage tax applied either at the stage of manufacturing or at the level of consumption of goods and services. The transition from GST to SST was aimed at reducing the tax burden on consumers and simplifying tax compliance for businesses.

GST and SST Rate

The Sales and Services Tax (SST) has returned with sales tax rates of 5% and 10% for various goods and a service tax rate of 6%. 

As of March 1, 2024, the service tax rate under SST has increased to 8% for all taxable services, except for specific sectors like food and beverage services, telecommunication services, parking services, and logistics services, which remain unchanged.

This contrasts with the previous Goods and Services Tax (GST) system, which had a flat rate of 6% for most goods and services, with exceptions for essentials like exported goods and basic food items, taxed at 0%. 

Reasons and Impact of GST on SST Shift

• The government of Malaysia has brought back the Sales and Services Tax (SST), setting the rate at 10% for sales and 6% for services. The Malaysian government first introduced the concept of SST back in 2018.
• The Goods and Services Tax (GST) hasn’t been popular, as many believe it has made things more expensive in Malaysia without clear benefits from the extra tax money collected. 
• For businesses, getting a GST tax refund has been tough, sometimes it is denied, and they need to have at least RM500,000 in yearly sales to claim it.
• Although moving to SST will reduce the government's tax income by an estimated RM25 billion, it’s seen as a simpler tax system compared to GST, which is why it's being reintroduced. Experts think prices might decrease but the impact could vary. 
• The sales tax is applied to the cost of making or importing goods, while the service tax could apply to a variety of services, possibly leading to higher prices for these services overall.

Difference Between GST and SST in Malaysia

Below is a table encapsulating the differences between GST and SST in Malaysia:

What goods and services are taxable under GST and SST?

Under GST, a wider array of goods and services were taxable, encompassing almost all types of goods and services with some exemptions. On the flip side, SST targets a narrower spectrum. Sales tax under SST is levied on specific goods, whereas service tax is imposed on selected services like professional services, hospitality and food services.

How is GST and SST administered?

GST was administered by the Royal Malaysian Customs Department, which required businesses to be GST-registered and adhere to stringent reporting and documentation. SST, on the other hand, eases the administration process with less cumbersome documentation, making it a more business-friendly tax system.

Conclusion: Which system is better for Malaysia?

The transition to SST from GST was hailed for its simplicity and reduced tax burden on consumers. However, it's imperative to note that GST's broader tax base had the potential for higher revenue collection which could be pivotal for national development projects. SST is arguably more business and consumer-friendly, aligning well with Malaysia's aim to simplify tax processes and reduce the cost of living.

However, the ultimate choice between GST and SST hinges on a balanced approach towards achieving revenue collection goals while fostering a conducive business environment and easing the cost of living for the populace.

Engaging with platforms like Cleartax can help businesses navigate through the complexities of tax regimes and e-invoicing, ensuring compliance and efficiency in operations.

Also Read

e-Invoicing in Malaysia

e-Invoicing FAQs in Malaysia

Transaction Types of e-Invoicing in Malaysia

e-Invoice Model in Malaysia

Important Terms in Malaysia e-Invoicing

e-Invoice Exemptions in Malaysia

Reasons for Rejection and Cancellation of e-Invoice in Malaysia

e-Invoice Malaysia Penalties

Self-Billed e-Invoice in Malaysia