Sales & Service Tax (SST) in Malaysia

In a significant fiscal shift, Malaysia waved goodbye to the Goods and Services Tax (GST) on September 1, 2018, and ushered in the era of the Sales and Service Tax, commonly referred to as SST. This transformative move marked a pivotal moment in Malaysia’s tax landscape, impacting both businesses and consumers alike.

The SST came into play as the replacement for GST, which had been the country’s primary tax collection mechanism. This switch in tax models reflected a broader governmental effort to revamp Malaysia’s tax system, aimed at achieving more equitable fiscal policies.

While SST may appear markedly different from GST, there remain notable parallels between the two systems. However, the key distinction lies in the extensive list of products and services exempt from taxation under SST, a departure from the relatively narrower exemptions under GST.

So, let’s embark on this journey by delving into the abolishment of the GST and the subsequent advent of the SST. Find out more SST related articles and knowledge from RS36 Solutions Blog post.

What is SST?

Sales and Service Tax, abbreviated as SST, represents a paradigm shift in Malaysia’s tax collection mechanism. This taxation model is characterized by its single-stage approach, applicable to all taxable goods manufactured and sold within the nation.

SST extends its reach beyond the confines of domestic manufacturing. It encompasses a wide spectrum of taxable goods, irrespective of whether they are locally produced or imported, underpinning its comprehensive nature.

Nonetheless, SST is not an all-encompassing levy, as numerous products and goods enjoy exemptions from the tax. These exempted items find themselves listed in the “Sales Tax Exemption Order.”

The Two Faces of SST

The SST framework comprises two integral components:

Sales Tax: This represents a single-stage tax imposed on products that undergo local manufacturing and production, as well as on taxable goods imported into Malaysia.
Service Tax: Serving as a consumption tax, the service tax is applied to taxable services provided within Malaysia by registered service providers engaged in their respective businesses.

Details of Sales Tax in Malaysia

Sales tax is a pivotal component of the Sales and Service Tax (SST) framework in Malaysia. This section delves into the nitty-gritty of sales tax, starting with an overview of what qualifies as taxable goods and what enjoys exemption. We’ll also discuss individuals and manufacturers who are exempt from sales tax and elucidate the diverse tax rates that apply to different goods and services under SST.

What Constitutes Taxable Goods?

Under the purview of sales tax, taxable goods encompass items produced domestically within Malaysia as well as those imported into the country. The scope is wide-ranging and includes various categories such as:

Articles of plastic, rubber, and leather
Bird’s nest and honey
Cosmetics and perfumes
Edible preparations
Fat and oil
Fruit juice
Furniture
Glue
Milk and dairy products
Musical instruments
Oil seeds
Preparation of vegetables, fruits, and nuts
Preparations of crustaceans, molluscs, or other aquatic invertebrates
Preparations of meat
Soap, wax, and polish
Tobacco and manufactured tobacco substitutes
Watches

Goods Exempted From Sales Tax

Persons and Manufacturers Exempted From Sales Tax

The Sales Tax (Person Exempted from Payment of Tax) Order 2018 outlines specific individuals and manufacturers that are exempt from sales tax. These include:

Sales Tax Rates in Malaysia

Understanding the tax rates under SST is essential for both businesses and consumers. The tax rates can vary based on the nature of goods or services. Here’s a breakdown of SST rates in Malaysia:

Tax Rate	Type	Applicable to
10%	Standard	Goods throughout B2B process
6%	Standard	Services offered to non-tax registered final consumers, including hotels, restaurants, car repair & rental, insurance, domestic flights, etc.
5%	Reduced	Goods like petroleum oils, construction materials, telecommunications, foodstuffs, IT, printing materials, and hardware.

A detailed list of the taxable goods tax rates can be read here.

Service Tax (SST) structure in Malaysia

Service tax forms the other vital half of the Sales and Service Tax (SST) structure in Malaysia. This section takes a closer look at the world of taxable services, categorizing them into groups and highlighting the standard tax rate applicable to these services.

Service Tax Rates: A Universal Standard

The service tax rate in Malaysia is consistent across the board, standing at a flat rate of 6% for all taxable services. This uniform rate ensures simplicity and ease of compliance for businesses and service providers.

It’s important to note that services that are imported into or exported from Malaysia are exempted from service tax. This exemption aims to facilitate international trade and avoid double taxation on cross-border services.

Understanding the Taxable Person

A crucial aspect of navigating the Sales and Service Tax (SST) framework in Malaysia is grasping the concept of a “taxable person.” This section sheds light on who qualifies as a taxable person and the process of SST registration, including exemptions and the annual income threshold.

Defining a Taxable Person

A taxable person under the SST framework can be either a manufacturer or a service provider who is subject to SST registration. These businesses are mandated by law to comply with the SST regulations and fulfill their tax obligations.

However, it’s important to note that certain businesses, even if not obligated, have the option to voluntarily apply for SST registration with the Director-General of Customs. This choice may be influenced by various factors, including business strategies, market positioning, and compliance considerations.

The Annual Income Threshold

For businesses operating in Malaysia, whether they are locally established or international entities conducting activities within the country, SST becomes a financial obligation when they exceed a specific annual income threshold. As of now, this threshold is set at RM500,000.

This means that once a business’s annual income surpasses RM500,000, they are liable to pay SST and are required to register for the tax.

Seamless Transition for GST-Registered Businesses

Notably, businesses that were previously registered under the Goods and Services Tax (GST) framework do not need to undergo a separate registration process for the Sales and Service Tax. The transition is designed to be smooth and hassle-free. Their data from the GST registration will be seamlessly transferred to create the SST Malaysia registration.

Furthermore, the registration process itself is streamlined and user-friendly, conducted primarily through online channels. This approach minimizes administrative burdens and enhances efficiency in compliance with SST regulations.

Which businesses must apply for sales and service tax registration in Malaysia?

In Malaysia, the obligation to register for the Sales and Service Tax (SST) rests upon businesses that deal in taxable goods and services. To ascertain which businesses are required to undergo SST registration, it’s essential to consider specific conditions and thresholds for both sales tax and service tax.

Sales Tax Obligation

Manufacturing Taxable Goods: Companies involved in the manufacturing of taxable goods fall under the purview of sales tax. This includes entities that produce goods intended for sale within Malaysia.

Total Sales Value Threshold: SST registration for sales tax is mandatory for businesses whose total sales value over the preceding 12 months exceeds RM 500,000.

Service Tax Obligation

Providing Taxable Services: Service providers offering taxable services are also subject to SST registration. Taxable services encompass a broad range of activities.

Total Value of Taxable Services Threshold: To necessitate service tax registration, the cumulative value of taxable services provided over the preceding 12 months must exceed the prescribed threshold. Generally, this threshold is set at RM 500,000, but exceptions may exist for certain services, which could have distinct thresholds.

Additional Thresholds and Exceptions

Beyond the core conditions outlined above, there are additional thresholds and exceptions that warrant attention:

Certainly, here’s the information in a table format for easy reference:

Tax Type	Business Activity	Threshold
Sales Tax	Manufacturing taxable goods	Total sales value within the last 12 months exceed RM 500,000
Service Tax	Providing taxable services	Total value of taxable services within 12 months exceeds RM 500,000 (varies for certain services)
Service Tax	Operators of restaurants, bars, snack bars, canteens, coffee houses, or similar food and beverage establishments	RM 1.5 million
Service Tax	Persons regulated by Bank Negara Malaysia providing credit card or charge card services	No threshold
Service Tax	Approved customs agents	No threshold

Who is Eligibile for SST in Malaysia?

In Malaysia, determining whether your business is eligible for the Sales and Service Tax (SST) is a critical step before proceeding with registration. Here, we clarify the criteria for eligibility, how GST-registered businesses transition to SST, and the specific thresholds that apply to various sectors.

Automatic Identification for GST-Registered Businesses

GST-registered manufacturers, businesses, and service providers in Malaysia are automatically identified and registered under the SST framework. These entities can levy and collect sales and service tax from their respective customers. It’s crucial for businesses to stay informed about their SST registration status, and accounting partners or firms often play a role in providing guidance.

If a business doesn’t find itself automatically registered for SST, it should take proactive steps to register through the MySST system.

Service Tax Act 2018: Annual Thresholds

Businesses and service providers operating under the Service Tax Act 2018 are required to register for SST if their annual value of taxable services exceeds RM500,000. However, it’s important to note that certain sectors have distinct thresholds. For establishments like restaurants, cafes, canteens, bars, or any place offering food and beverages, the threshold is higher, set at RM1,500,000.

Service Tax Rate and Applicable Sectors

The service tax rate in Malaysia is standardized at 6%, offering a fixed rate for all taxable services. The ambit of SST encompasses a wide array of sectors and services, including hotels, employment agencies, legal services, gaming, insurance, parking facilities, courier services, and advertising/accounting services.

Sales Tax on Goods

Sales tax is levied on both the manufacturing and importation of goods. If a business’s total sales value exceeds RM500,000 within a 12-month period, it becomes liable to pay the SST. Notably, the sales tax rate varies depending on the specific products or goods and can range from 5% to 10%.

SST Exemptions

While SST casts a broad net over taxable goods and services, there are certain businesses and service providers that enjoy exemptions. Examples of SST-exempted sectors include jewelers, tailoring services, and opticians.

Understanding these eligibility criteria and thresholds is fundamental for businesses operating in Malaysia, ensuring that they are in compliance with SST regulations. Accurate assessment and timely registration are key to avoiding any legal complications and penalties associated with non-compliance.

How to register for Sales and Service Tax (SST) in Malaysia?

Registering for Sales and Service Tax (SST) in Malaysia is a pivotal step for businesses looking to comply with the taxation regulations. Below, we outline the procedure for SST registration and provide important deadlines.

Online Registration via MySST

SST registration can be conveniently completed through the official MySST website. This online platform simplifies the registration process for both sales tax and service tax. Here are the direct links for registration:

SST Registration Due Date

It’s crucial for businesses to be aware of the SST registration due date, which is the last day of the month following the month in which their total sales of taxable goods or services surpass the threshold. To illustrate, if a business’s total sales exceed the threshold on 31 May, the last day to apply for SST registration is 30 June.

Adhering to this deadline is imperative to ensure timely compliance and avoid any potential penalties or legal ramifications.

Foreign Companies and SST Registration

Foreign companies that do not maintain a permanent establishment in Malaysia are not obligated to register for either sales tax or service tax. Additionally, voluntary registration is not an available option for foreign companies operating without a permanent establishment in Malaysia. Therefore, foreign entities that do not have a physical presence in Malaysia are exempt from SST registration.

Procedures of Filing SST Returns

The SST return filing process in Malaysia follows specific guidelines:

Taxable Period: The taxable period for SST returns occurs every two months. It’s important to note that even if there is no tax liability, businesses are required to file the SST return within the stipulated timeframe.

SST Payment Deadline: SST payments must be made within 30 days from the end of the taxable period.

Transaction Timing for Sales Tax and Service Tax:

For sales tax, the tax is due when taxable goods are sold, disposed of, or first used by the taxable person.
For service tax, the tax is due upon receiving payment for taxable services rendered. However, if payment for the service is not received within 12 months from the date of invoice issuance, the tax becomes due on the day immediately following the expiry of the 12-month period.

Length of First Taxable Period: The length of the first taxable period depends on whether your company’s financial year-end month falls on an odd or even month.

SST Return Filing Methods

SST return filing can be accomplished through the following methods:

Online Filing via CJP System: Businesses can file their SST returns online through the Customs Processing Centre (CPC) system.
Manual Filing: Alternatively, businesses can download Form SST-02 from the MySST portal and submit it manually to the Customs Processing Centre (CPC) by post. The postal address for submission is as follows:
Jabatan Kastam Diraja Malaysia
Pusat Pemprosesan Kastam
Kompleks Kastam Kelana Jaya
No.22, Jalan SS6/3
Kelana Jaya
47301 Petaling Jaya
Selangor

Following these guidelines for filing SST returns is crucial to ensuring compliance with Malaysia’s taxation regulations. Staying informed about deadlines and procedures is key to avoiding penalties and maintaining smooth operations within the SST framework.

Procedures of SST Payment

Businesses have two primary methods for making SST payments:

Online Payment via CJP System: SST payments can be made conveniently online through the Customs Processing Centre (CPC) system’s FPX (Financial Process Exchange) system. This online platform facilitates secure and efficient transactions.
It’s worth noting that there are specific allowable payment limits for online transactions:
- Corporate Bank Account: Up to RM100 million
- Individual Bank Account: Up to RM100,000
If the payment amount exceeds these limits, businesses may need to consider an alternative payment method.
Cheque or Bank Draft Payment: Alternatively, businesses can make SST payments by issuing a cheque or bank draft payable to ‘Ketua Pengarah Kastam Malaysia.’ These cheques or bank drafts should be prepared in accordance with the specified payment amount and details.

Payment Limits and Considerations

Understanding the allowable payment limits for online transactions is essential for businesses to ensure they select the most appropriate payment method. While online payments offer convenience and efficiency, they are subject to specific monetary thresholds. If a business’s SST payment exceeds these limits, they should be prepared to use additional methods, such as cheques or bank drafts.

Address for Cheque or Bank Draft Payments

When opting for cheque or bank draft payments, businesses should ensure that the payment instrument is made payable to ‘Ketua Pengarah Kastam Malaysia.’ These cheques or bank drafts should be sent to the following address:

Jabatan Kastam Diraja Malaysia
Pusat Pemprosesan Kastam
Kompleks Kastam Kelana Jaya
No.22, Jalan SS6/3
Kelana Jaya
47301 Petaling Jaya
Selangor

By adhering to these payment procedures and considerations, businesses can fulfill their SST payment obligations efficiently and in compliance with Malaysia’s taxation regulations. Prompt and accurate payment is crucial to maintaining a good standing within the SST framework.

Penalties for SST Non-Compliance in Malaysia

Ensuring compliance with the Sales and Service Tax (SST) regulations in Malaysia is imperative for businesses to avoid facing penalties. This section outlines the various offenses and corresponding penalties that can be imposed in the event of non-compliance.

Failure to File SST Returns

Offense: Failure to file the required SST returns.
Penalty: Offenders may face a maximum fine of RM 50,000, a maximum imprisonment term of three years, or both, depending on the severity of the offense.

Failure to Make SST Payment

Offense: Failure to make the necessary SST payments.
Penalty: Those found guilty of this offense may be subject to a maximum fine of RM 50,000, a maximum imprisonment term of three years, or both, depending on the circumstances.

Late Payment of SST

Offense: Late payment of SST liabilities.
Penalty: Late payment of SST can result in financial penalties. Initially, a penalty of 10% of the outstanding SST amount is imposed for the first 30 days of delay. Subsequently, for the second 30 days, an additional 15% penalty is levied. Finally, during the third 30 days of delay, another 15% penalty is applied to the outstanding charges.

Tax Evasion

Offense: Deliberate attempts to evade or fraudulently reduce SST liability.
Penalty:
- First Offense: Offenders may face a minimum fine of 10 times and a maximum of 20 times the sales tax amount, a maximum imprisonment term of five years, or both.
- Second Offense: For repeat offenders, the penalty increases to a minimum fine of 20 times and a maximum of 40 times the sales tax amount, a maximum imprisonment term of seven years, or both.

These penalties are designed to deter non-compliance with SST regulations and maintain the integrity of Malaysia’s taxation system. Businesses should take their SST obligations seriously and strive for timely and accurate compliance to avoid these legal consequences.

Step by Step Guide to Find Your SST Number

SST vs. Company Tax

SST is fundamentally different from regular company tax, as clarified below:

Company Tax: Governed by the Income Tax Act of 1967, company tax applies to income derived from Malaysia, including dividends, rentals, royalties, and premiums. It is imposed by the Inland Revenue Board.
SST: SST, on the other hand, is administered by the Royal Malaysian Customs Department and is distinct from regular company tax. It is levied on specific categories of goods and services at the output stage, making it a different taxation framework from traditional corporate tax.

In summary, the transition from GST to SST in Malaysia is viewed positively due to its potential to increase disposable income, offer consumer choice and affordability, and still contribute to government revenue. SST’s characteristics, including its single-stage nature and variable rates, set it apart from GST, and it is distinct from regular company tax.

Conclusion

In conclusion, the shift from the Goods and Services Tax (GST) to the Sales and Service Tax (SST) in Malaysia represents a significant transformation in the country’s taxation system, one that is viewed as more consumer-centric and economically advantageous. The implementation of SST is expected to result in higher disposable income for Malaysians, stemming from reduced prices of goods and services.

This newfound affordability empowers consumers to make choices based on their consumption patterns while paying service taxes commensurate with their financial means. In contrast to the broader scope of GST, SST’s focused approach may yield a smaller annual tax collection, but its emphasis on affordability and consumer choice makes it a favorable tax framework among the populace.

Furthermore, SST distinguishes itself from traditional corporate taxes, as it operates as a single-stage tax applied solely at the output stage of specific categories of goods and services. This tax shift is not just about economics; it’s about giving consumers more control over their purchasing power.

In Malaysia, SST stands as a testament to a tax system designed to align with the needs and preferences of the people, offering a tax framework that enhances consumer choices and financial flexibility while still contributing to government revenue. If you are in search of professional SST submission services, consider reaching out to RS36 Solutions for expert assistance.