Malaysia reintroduced the Sales and Services Tax (SST) to replace the Goods and Services Tax (GST) beginning 1 September 2018. SST tax rate is set at 5% and 10% for sales and 6% for services. At time of writing, the list of items exempted from SST is still being revised, taking feedback into consideration and will only be finalised by the end of the year. Information is also being publicised frequently through the Royal Malaysian Customs Department website at https://mysst.customs.gov.my/
Prior to the implementation of SST, the Finance Minister, Lim Guan Eng acknowledged the impact of SST but quick to assure the people that the effect will be less taxing than GST, mainly due to the estimated annual collection from SST will only be RM21 billion as compared to RM44 billion with the GST system.
Dato’ Haji Ameer Ali bin Mydin, Managing Director of Mydin Mohamed Holdings has openly said that the government is making a huge mistake (in implementing SST), citing SST rate of more than 4% will surely lead to inflation. He told Money Compass that GST is more transparent as compared to SST.
Car price to increase… yet did not
A report in The Star prior to implementation of SST said that consumers should expect car prices to move up by approximately 2%-3%, which coincides with another report in RinggitPlus.com.
Minister Lim however, said that consumers will be enjoying lower prices by between RM2,000 and RM3,000 for at least five brands of cars including Perodua, Honda, Toyota, Volkswagen and BMW.
Malaysia Automotive Institute (MAI) chief executive officer Datuk Madani Sahari said that SST implementation has indeed reduced car prices but mostly only cars produced in the country. Sunway University Business School economics professor Dr Yeah Kim Leng said that the SST is a single stage tax and not being collected at every stage of the supply chain, and therefore vehicle prices are now lowered. He added that car manufacturers are also facing increasing competitions resulting in lower prices of car to stimulate demand.
Tepid in price movement for consumer items
The Kuala Lumpur Hawkers and Petty Traders Association (KLHPTA) chairman Datuk Ang Say Tee said that the SST did not cause any sharp rise or fall in prices of goods sold by hawkers and traders.
As the threshold for the tax was raised to RM1.5 million yearly revenue from RM500,000 under the GST previously, the SST is not imposed on 75 per cent of shops and restaurants. Minister Lim said only 4,372 restaurants, compared to 15,574 under GST, were registered under SST.
Furthermore, SST for selected goods including beauty products and skincare, cosmetic, mobile-phone accessories, watches, retread tyre, tyre and tubes for motorcycles has been revised from the initial rate of 10% to 5%.
TheEdge reported that tobacco companies have increased cigarette prices by 1% to 4%, after SST implementation. Cigarette prices have gone up by between 20 sen and 50 sen, equivalent to an increase of 1.18% and 4.35%, respectively.
House price will not reduce…. Or will it?
While the Finance Minister expects house prices to reduce because basic building materials like cement, bricks and certain steel products are exempted from SST, industry players think otherwise.
Building Materials Distributors Association of Malaysia (BMDAM) President Bill Lee said that price movements are affected by many factors including overhead, exchange rates, demand and supply as well as profit margin. This is echoed by Associated Chinese Chambers of Commerce & Industry of Malaysia (ACCCIM) head of taxation committee Koong Lin Loong, who said that the cost of purchasing a property may not change as there are other services involved in the construction and in the transaction of a property that are not SST exempted.
Legal practitioner Dominic Tan, founder of PW Tan & Associates said property buyers should expect a greater tax burden for the use of professional services rendered by solicitors, architects and engineers.
Lim made extra effort by asking developers to reduce house prices on a national level. He also threatened to reimpose the SST on construction services if developers do not pass the savings to buyers, but later news reported that Lim acknowledged that land prices are dependent on locality and are decided by market forces.
The Real Estate and Housing Developers Association (Rehda) said cheaper construction costs doesn’t necessarily translate to lower house prices. Immediate past chairman Jerry Chan said developers need to also consider labour, property market conditions, compliance costs and the cost of land.
However, all is not bad for house buyers though. The Penang chapter of Rehda recently announced six and 10 per cent discount on house prices. Penang Rehda chairman Datuk Toh Chin Leong announced that prices of houses costing RM300,000 and above will cost 10 per cent less, backdated to 1 September 2018. He added that purchasers who buy houses costing below RM300,000 will enjoy a discount of six per cent and is applicable to existing projects or new ones.
Rehda president Datuk Soam Heng Choon said the association is studying the exact savings from the SST exemption before concluding new house prices. “The amount of savings will then be passed on to consumers,” he said. Rehda is expected to resend the report before the 2019 Budget announcement.
To this, Minister Lim gave property developers until the end of October to submit reports on savings made as a result of SST exemption on construction materials, before the government decides to either revoke or retain the benefit.
All is not gloom despite SST
Despite expectations and perceptions of the implementation of SST, be it negative or positive, all is not gloom. Data from Nikkei’s September Purchasing Manufacturer’s Index (PMI) showed that Malaysia’s manufacturing condition is the strongest for 10 months, driven by a faster rate of job creation. Director of Economic Indices, IHSMarkit, Paul Smith said Malaysia’s manufacturing economy defied challenges of the SST to register the strongest Manufacturing PMI growth in ten months in September.
While the World Bank sees Malaysia’s economy growing at a slower pace from this year to 2020, it also expects the fiscal deficit to narrow, depending on the economic growth. In its outlook report issued recently, the World Bank also expected growth to moderate to 4.9% this year and 4.7% next year and at 4.6% in 2020. Malaysia economy grew at 5.9% in 2017. As for the fiscal deficit, it sees its narrowing from 2.9% this year to 2.8% next year and 2.5% in 2020.
Time needed to review impact of SST
Dr. Veerinderjeet Singh, chairman of the taxation committee of the Malaysian Institute of Accountants said that a two-year time frame will be good to get an idea of whether the system is stable and for assessment of the system. Ernst & Young Tax Consultants Sdn Bhd director Jalbir Singh said that the impact of SST can only be seen and evaluated as early as January 2019 and more time should be given to make adjustments and transitions.