GST vs SST : Which is better, WHY?

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GST vs SST

The battle between GST vs SST is real. Up to this day when this post is made, people are still arguing and debating about it.

GST stands for Goods and Services Tax while SST stands for Sales and Service Tax.

You need not to be part of any political divide to have an opinion on the Malaysian tax system because any sort of tax system, would affect every single Malaysian.

That said, a week ago, I asked an accountant about the difference between GST and SST, and what’s the real deal when GST vs SST?

WHAT IS GST?

According to Wikipedia, the Goods and Services Tax (GST) is a value-added tax in Malaysia. GST is levied on most transactions in the production process, but is refunded with exception of Blocked Input Tax, to all parties in the chain of production other than the final consumer.

It is a handful to understand, so let me simplify to my understanding.

GST will be charged on almost every single transaction made in a business up to the end buyer. However, rebates are given at certain tier to ensure the tax would not accumulate downstream. This means tax remains at the initial percentage.

For Malaysia, GST was introduced in 2015 and retained at 6%.

WHAT IS SST?

I couldn’t find a ‘copy and paste’ explanation on the Sales and Service Tax (SST), but based on reading a few explanations, I conclude that the SST is a one off tax over sales and services.

It is charged once at the manufacturer and/or consumer level only, and the tax can range between 5 – 10%.

The SST was initially replaced by the GST, but it is making a comeback on 1st September 2018.

GST VS SST

This is the real question. Is GST better than SST?

Pakatan Harapan had consistently said that GST had burdened the rakyat. So, one of their biggest pledges was to re-instate SST once they came into power. GST as they promised, would be removed.

Well, they won the 9th May elections, and GST was immediately removed with SST coming into effect this 1st September.

Anyway, the move to abolish GST didn’t stop the discussion on GST vs SST, and some papers came up with explanations.

The one below was from MalaysiaKini.

GST vs SST
The GST vs SST comparison based on cost.

As you can see, the table clearly shows that GST is the cheaper option and Astro Awani in their comparison also said that GST is in fact the more transparent tax of the two.

I asked an accountant handling GST and SST and she confirmed with me the table provided by MalaysiaKini above is correct.

IF GST IS BETTER, WHY WAS PRICES MORE EXPENSIVE?

Another million dollar question. Well, it goes down to enforcement. While GST may be the better and more transparent tax system, it had complicated implementation.

The complications came especially in the refunds.

It is my opinion that most traders and middle man are supposed to get 6% tax refunds. The problem was that these tax refunds were not immediate. Manufacturers and middle man therefore would prefer to just charge an extra 6% over the 6% GST, hence making the total increase in price at 12% rather than just 6%.

GST vs SST
Tax rebates were supposed to be given, but most didn’t bother to reduce the rebates in their pricing.

These same people also do not bother reducing the items they sale by 6% despite receiving rebates, hence keeping the prices of items high.

Another reason why GST was seen as ‘being bad’ would be due to it’s transparent nature.

Under SST, Malaysians in general do not realize they pay taxes. Receipts during pre-GST time do not show the word ‘tax’ unless you go to certain places. This was accurate considering the tax was likely paid by the manufacturer and it is already included in the sale price.

Therefore, as the item goes down, there is no need to show that the item has been taxed.

The normal rakyat buying groceries and food at normal stalls therefore do not think they are being taxed. This assumption is because SST does not appear in the receipts in contrast to GST which appears on the receipt.

It was when GST was introduced everyone realized they are paying tax.

The realization that Malaysians are now taxed for every single item they buy or use had a direct negative impact on the GST’s image.

SO WHAT NOW?

In truth, GST is indeed the better tax system. However, we can all agree that its implementation was scrappy and needed a lot of fine tuning.

I think we can also all agree that GST was used and manipulated. Some people made money while the rakyat paid for it.

Now that GST is no more, the re-introduction of SST would be another great reason for many to hike rates of things.

I know my favourite Mee Kolok stall had claimed they can’t reduce prices because they ‘are still keeping GST stock’, which is bullshit because you can’t keep pork and noodles for months.

That said if you think prices of things would go down, I guess the table by MalaysiaKini above is pretty straight forward to show that you can continue to dream on.

1 COMMENT

  1. Malaysia has among the lowest tax rate in the world. In Australia, we have to pay for 10% GST and our take home paid is around 60% of actual paid. 40% of income is taxed. I think the real question you have to ask is how the government utilise the tax.

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