The Sales and Service Tax (SST) in Malaysia provided relief for low-income groups and small businesses. Introduced on 1 September 2018, SST superseded the widely criticized Goods and Services Tax (GST) system. The GST system in Malaysia was infamous for its excessive compliance and record-keeping requirements. SST applies to locally produced or imported taxable goods. On the other hand, service tax is charged on qualified services. If you want to learn about the advantages and disadvantages of SST Malaysia, you're in the right place! So, let’s get started without any further ado.
Understanding the Current Tax Rate under SST Malaysia
As of 2025, the sales tax imposed is at 5% or 10%, based on the type of goods. On the contrary, in March 2024, the service charge was revised from 6% to 8%.
It is worth noting that the service rate for essential services, such as food and beverages, logistics, and telecommunication, remains at 6%.
SST applies to businesses with an annual turnover exceeding RM500,000. SST does not span basic food items, medicines, books, residential property maintenance, and interstate logistics.
Advantages of Sales and Services Tax
A few of the many advantages of sales and services tax in Malaysia are
Reduced Cost of Living
SST is a single-stage tax, meaning it is imposed only once during the entire supply chain, either at the time of manufacture or at the time of importation in Malaysia. It significantly reduces the cost of living and enhances purchasing power, which in turn encourages businesses to increase their production.
Enhanced Exemption
Unlike GST, SST exempts a range of products from paying sales tax. These include, but are not limited to
- Food items
- Chemicals
- Pharmaceutical goods
- Medicine
- Iron
- Steel
- Machinery
It enables a number of cost-conscious businesses to avoid SST’s compliance and filing requirements, leading to increased profit margins and savings.
Similarly, businesses engaged in service-based activities, such as jewelry making, tailoring, EXIM, and engraving, are exempt from SST. It will serve as a boon for small and medium-sized enterprises.
Minimal Impact and Compliance
Sales and services tax is adjusted so as to minimize its impact on lower-income groups. With this tax regime, compliance costs have decreased for all. Entrepreneurs seeking company formation in Malaysia can find this a significant relief.
Reduced Operational Cost
The cost of doing business has also gone down. So, all business-minded individuals looking for company formation in Malaysia, be assured that there is one less thing for you to worry about.
Disadvantages of SST Malaysia
Unfortunately, SST is not without challenges. Here are some of its downsides that you should be aware of.
1. Lack of Transparency in the Supply Chain
Companies may use SST to their advantage by hiding the actual tax burden in the final price, tricking customers into paying more for a product or service.
2. Risk of Price Mark-Ups
The absence of an input tax credit mechanism may encourage companies to pass hidden costs to end-users. It can pave the way for cascading effects, especially if the components or raw materials are subject to taxes at various stages.
3. Narrow Tax Base
SST can hamper the government’s revenue potential as it applies to fewer goods and services. This narrower tax base can encourage various industries to pursue tax evasion, eventually hindering the goal of benefiting the end-users.
4. Higher Compliance Gaps
Some businesses may choose to skip the SST registration even if they surpass the income threshold to save big on taxes. Without robust enforcement, this can lead to several problems, including tax leakage and unfair competition.
Key Takeaways
Getting familiar with the advantages and disadvantages of sales and services tax shouldn't make you start weighing your options about starting a business in Malaysia. Here are some more aspects of SST that you should be aware of:
- SST is levied on taxable goods manufactured in Malaysia by a taxable person or taxable goods imported into Malaysia.
- If you are manufacturing taxable goods and your annual turnover exceeds RM500,000, you must register under SST immediately or face penalties.
- Even if your annual turnover doesn't exceed RM 500,000, you can still voluntarily register for SST if you believe that, in the foreseeable future, the annual turnover of your business activities may exceed the stipulated threshold and you wish to avoid last-minute registration.
- Every registered taxable person should issue a tax invoice, charge sales tax on sales, and submit bi-monthly returns.
- One can pay the sales tax either through e-payment or through check/draft/post to the SST processing center.
- Sales and services tax is refundable in cases where your business incurs bad debts. However, you must write off such invoices or receivable amounts as bad debts in your bi-monthly tax payments.
- Every credit card holder pays an annual service tax of RM 25.
- Multiple entities can obtain branch registration or group registration.
Conclusion
SST is a promising tax regime that inspires confidence among low-income groups and businesses. But its downsides may prevent new-age investors and entrepreneurs from starting a new venture. As a businessperson, understanding these intricacies is crucial when starting. Additionally, one cannot overlook the importance of compliance maintenance. That’s why we recommend contacting a reliable partner, such as BSW, to stay compliant.
Business Setup Worldwide (BSW) has helped thousands of businesses achieve success through laser-focused expertise and bespoke services. From taxation to accounting, we excel in a wide range of areas. We help clients scout possibilities, navigate compliances, understand industry nuances, and comply with tax regulations like no other. For further information, feel free to contact us via email at [email protected] or WhatsApp at +971 504808605
