One important tax system reformation that Malaysia implemented was to replace the Goods and Services Tax (GST) with a Sales and Service Tax (SST). This guide will focus on the core aspects of Malaysia’s Sales and Service Tax ( SST).
First, there needs to be an explanation of how GST was abolished.
Content Outline
Abolishment of GST in Malaysia
In 2015, Malaysia introduced the Goods and Services Tax (GST) with a rate of 6 %. But three years later, under public pressure from the rising cost of living, the government finally eliminated the GST in 2018. Instead, it declared a 0% GST tax holiday and then implemented its Sales and Service Tax (SST) system in September 2018.
What is Sales and Service Tax?
The SST in Malaysia consists of two main components:
- Sales Tax: The tax is charged on goods made in the country and exempts some previously-taxable items imported from abroad. It would be a one-stage tax levied at the time when goods are processed or produced.
- Service Tax: It is a tax on some services done in Malaysia by service providers registered and carrying out their activities within Malaysia. This is a consumption tax on myriad services.
1. Sales tax
What are taxable goods?
Items not listed in the Sales Tax (Goods Exempted From Sales Tax) Order 2018 are taxable.
Just think of any store you go into! Anything you can buy–everyday necessities like furniture, clothes and electronics to rarely used things such as cosmetics and perfume–will have sales tax.
Sales tax is a single-stage tax charged and levied:
- manufactured in Malaysia by the taxable person and sold (or used or disposed of) by him other than those goods that are listed as being exempt from taxation.
- Taxable on goods imported into Malaysia.
What goods are exempted from sales tax?
Goods manufactured for export are exempted from sales tax. Sales tax is exempted on export of taxable goods. Other goods which are specifically exempted include:
- Includes live animals, fish and seafood as well as select food products in which we have a genuine need such as meat, milk, eggs, vegetables, fruits and bread.
- Books, magazines, newspapers, journals and periodicals.
- Parts and accessories for bicycles.
- Mineral substances, chemicals and other naturally occurring types.
- Medicine, medical cream, cough syrup, bandage, medicaments containing multivitamin & minerals etc.
- Animal-based and chemical fertilizers, insecticides.
- Such articles of goldsmith as gold, platinum jewellery, silver tableware, etc.
The Sales Tax (Goods Exempted from Tax) Order 2018 listed the comprehensive list of goods exempted from sales tax.
Persons and manufacturers exempted from sales tax
As per Sales Tax (Person Exempted from Payment of Tax) Order 2018, the following individuals or person are granted exemption from sales tax:
- Schedule A
- Paramount Ruler (Yang di Pertuan Agong)
- Ruler of the State
- Federal or State Government Department
- Importer
- Local authority
- Malaysian Armed Forces
- Duty-free shops
- Public Higher Education Institution
- Schedule B
- Approved manufacturers by The Director-General.
- Manufacturers of certain specified non-taxed products to qualify for exemption from tax on materials, parts, packaging materials and manufacturing accessories used directly and solely in production.
- Schedule C
- The acquisition of raw materials, components, packaging materials and manufacturing aids to be used solely and directly in the manufacture of taxable goods by registered manufacturers of such goods shall remain free of tax.
What are the sales tax rates?
The sales tax rates are as follows:
- 5%: applies to goods such as basic food items, building materials, fruit juices, personal computers, mobile phones, and watches.
- 10%: is imposed on other goods, except for specific rate-applicable petroleum products and items not exempted from taxation.
To obtain a complete list of taxable goods tax rates read here.
2. Service tax
What are taxable services?
Taxable services in Malaysia are classified into groups A to I, encompassing various sectors:
- Group A – Accommodation
- Group B – Food and beverage
- Group C – Nightclubs, dance halls, cabarets, health and wellness centers, massage parlors, public houses, and beer houses
- Group D – Private clubs
- Group E – Golf clubs and golf driving ranges
- Group F – Betting and gaming
- Group G – Professional services including:
- Legal services
- Accounting, auditing, bookkeeping, and consultancy
- Surveying services
- Engineering consultancy
- Architectural services
- Consultancy services
- Information technology services
- Management services
- Employment services
- Group H – Credit card and charge card services
- Group I – Other service providers including:
- Advertising services
- Brokerage
- Cleaning services
- Courier delivery services (for documents or parcels up to 30kg)
- Foreign digital services
- Hire car services
- Insurance services (excluding life or medical insurance)
- Local air travel services
- Customs clearance services for goods
- Servicing and repair of motor vehicles
- Subscription broadcasting services
- Telecommunication services
- Theme parks
What are the service tax rates?
Service tax applies to all taxable services at a rate of 6 %. The export or import of services is excluded from the service tax.
Who is a taxable person?
A taxable person is anyone who is a manufacturer or service provider and who is subject to SST Malaysia registration.
Those businesses able to get their SST Malaysia registration exempted can voluntarily reregister for SST Malaysia with the Director-General of Customs.
Which businesses must apply for sales and service tax registration in Malaysia?
Businesses that provide taxable goods and services must register for SST Malaysia if they meet the following conditions:
- Sales tax
- Manufacturing taxable goods
- Within the last one year, total sales value has surpassed RM 500,000.
- Service tax
- Providing taxable services
The total value of these series over a 12-month period is above the threshold set (usually RM 500,000), though this threshold may vary for different services.
| Additional thresholds | |
|---|---|
| Taxable service provider | Threshold |
| Operators of restaurants, bars, snack bars, canteens, coffee houses, or any establishments offering food and beverage services for dining in or take-out. | RM 1.5 million |
| Individuals or entities regulated by Bank Negara Malaysia who offer credit card or charge card services. | No threshold |
| Approved customs agents engaged in specified customs-related services. | No threshold |
How to register for sales and service tax in Malaysia?
Registration for sales tax and service tax can be completed via the MySST website. If your sales volume of taxable items exceeds a threshold, you must get registered for SST Malaysia by the last day of the following month. For instance, as long as you exceeded the threshold before May 31st, then your deadline for applying to register under SST Malaysia would be June 30th. In addition, A business that qualifies for SST Malaysia exemption must apply on the MySST website.
Are foreign companies required to register for sales and service tax in Malaysia?
For foreign companies without a permanent establishment in Malaysia, there is no need to register for sales tax or service tax.
When to file the sales and service tax return?
The filing period of the SST return is two months. If there is no tax to be paid, the return still must be filed.
SST payment is due for receipt within 30 days of the end of the taxable period.
Applications for SST Malaysia can be submitted online via the CJP system or by downloading Form SST-02 from MySST and mailing it to the Customs Processing Centre (CPC).
The address is:
Jabatan Kastam Diraja Malaysia Pusat Pemprosesan Kastam Kompleks Kastam Kelana
Jaya No.22, Jalan SS6/3,
Kelana Jaya,
47301 Petaling Jaya,
Selangor
Penalties
Penalties are imposed on the following offences:
| Offence | Penalty |
|---|---|
| Failure to file the SST returns | A fine of up to RM 50,000, a maximum imprisonment term of three years, or both. |
| Failure to make SST payment | The maximum penalty includes a fine of RM 50,000, imprisonment for up to three years, or both. |
| Late payment | In the initial 30 days, a 10% charge is levied on the outstanding SST amount. In the subsequent 30 days, an additional 15% is imposed, and for the following 30 days, another 15% charge is applied to the outstanding amount. |
| Tax evasion | For the first offense, a fine ranging from a minimum of 10 times to a maximum of 20 times the sales tax amount, a maximum imprisonment term of five years, or both can be imposed. For the second offense, a fine ranging from a minimum of 20 times to a maximum of 40 times the sales tax amount, a maximum imprisonment term of seven years, or both may be imposed. |
Conclusion
To resolve issues with the cost of living, SST Malaysia (Sales and Services Tax) took over in 2018 as a replacement for GST (Goods and Services Tax). SST Malaysia includes two main components: Sales Tax (5% or 10% for different commodities). Service Tax (6%, fixed rate on all taxable services). For companies which had earlier registered under the GST, the jump to SST Malaysia was easily made. There are penalties, including fines to prison terms, for SST evasion and failure to file returns or pay. Turning to professional corporate services such as the FastLane Group can be a huge relief in navigating compliance, SST Malaysia and other areas of tax adherence. Their expertise can help on the SST Malaysia registration, compliance and all related matters.