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By Lien Hoang
Malaysia will impose a sales tax starting in September, giving officials time to smooth out administration issues.
The sales and services tax (SST), likely to be set at 10 percent, will replace a goods and services tax (GST) that ends June 1, though it won’t bring in as much revenue. The SST was last in place in 2015.
“Much work is required to ensure that the new SST is here to stay for the long run,” said Ivy Ling Yieng Ping, associate at law firm Lee Hishammuddin Allen & Gledhill. “The old SST model needs to be refined and the original tax base needs to be widened.”
The previous iteration of the SST was rife with fraud and tax avoidance thanks to manual filing, double taxation, and low transparency in the appeals process, Ping said.
The 6 percent GST came into force and replaced the SST on April 1, 2015. The new government, which came to power in this month’s upset election, ran on the promise to end the GST. After the election, practitioners speculated the SST would be revived to help replace some of the lost revenue.
Debt in Malaysia totals 1 trillion ringgit ($251 billion). Practitioners previously said the GST brought in about 42 billion ringgit annually.
To help fill the budget gap, officials have said they will cut waste in spending and pull back on infrastructure expenditures.
“We have already seen some action take place in this area,” Deloitte Malaysia executive director Senthuran Elalingam told Bloomberg Tax.
“Consumer sentiment” has likely improved since the news the GST would be reduced to zero, which will spur more retail activity—and income tax revenue, Elalingam said.
The GST covered most products and services, and was imposed at each level of the supply chain, while the SST was limited to manufacturing and services, and was only imposed at one level.
“The shortfall could be reduced by widening the scope of goods and services that would be subject to SST,” Roedl and Partner associate Priya Selvanathan told Bloomberg Tax. “The government could also review the rate of sales and service tax to be imposed and the registration thresholds.”
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