EFFECTS OF SST ON PRICE GOODSPresently, Malaysia has consumption taxes in the form of sales tax and service tax (SST), which are imposed on specifically identified classes of goods and services, respectively.
These taxes are levied at a single stage, i.e. at the manufacturer’s or importer’s level (for sales tax) and service-provider’s level (for service tax). On the other hand, SST is a broad-based consumption tax on all supplies of goods and services, with minor exceptions. It is a staged tax where each level is taxed in every production of goods and services. A credit is given to each taxable person in the supply chain, for the SST paid on his purchases against SST due on sales made by him. Thus SST is paid on the value added. The abolishment of the Goods and Services Tax (GST) and the reinstatement of the Sales and Services Tax (SST) might translate into a 1% revenue loss of Malaysia’s gross domestic product (GDP) assuming that the new tax system will effect in July, according to Moody’s Investors Service.
We Will Write a Custom Essay Specifically
For You For Only $13.90/page!
They are assuming a stable share relative to GDP and taking into account seasonal patterns, they estimate that the revenue loss from the voiding of the GST at around 1.9% of GDP this year. We estimate that if the SST, which yielded revenue of around 1.6% of GDP before the GST replaced it, takes effect in July, the revenue loss would narrow to 1.
0% of GDP in 2018.The advantages of SST are numerous. The first would be having in place a more efficient tax system, to replace the present sales tax and service tax, which have inherent weaknesses and hence revenue leakages. For the SST system to function, proper documentation has to be kept. Importers will not have any incentive to under-declare the value of their imports because the credit they get would be less. In the case of smuggled goods, there would be no proof of payment of SST to claim any credit.
For example, the prices of hotel rooms and services will depend on whether or not the hotel industry needs to charge Service Tax as they did prior to GST, according to Malaysian Association of Hotels president Sam Cheah in a report by The Star. There are also those who view the 10% SST rate as too high. Recently the Malaysian Retailers Association (MRA) has urged the government to set the rate for the upcoming SST at less than 6%, according to The Edge Markets. So far, many experts are expecting prices of goods to be lower in general, though potential price hike is expected on some items, and also the charges or cost for services rendered if SST covers a wider range of services.
For example, the services rendered could be from a company to an individual, like professional services, or from a company to another company. There are many more advantages of SST, which would not be appropriate to canvass within the scope of this article. The detractors of the tax will claim that there would be an increase in the price of goods. Admittedly, yes. The mere fact that the incidence of tax on goods is moved from the manufacturer’s level to the retail level, and therefore create two extra stages of tax collection (at wholesale and retail), would cause a slight increase. Again the experience of other countries have shown that, with proper intervention from the Government, like reducing other forms of taxation, educating the traders and the public, any inflationary effect can be contained. Another argument put forward against SST is that it hits the lower, more than the higher, income group, as the lower income group will spend more of their gross income on food than the higher income group. There are ways to overcome this.
Be that as it may, to introduce SST successfully, the most important factor is the buy-in from the government and private sectors. The need for the public to be educated is paramount and this would take time. https://www.thestar.com.my/business/business-news/2003/09/11/sst–the-pros-and-cons/ https://cleo.com.my/how-will-sst-affect-your-spending-5-things-you-must-know/ http://www.thesundaily.my/news/2018/05/22/moodys-replacing-gst-sst-will-impact-govt-revenue