New tax likely to cover more goods and services

“The coverage of the new SST, especially the service tax, would likely widen due to the narrow scope of the old SST. “Lifestyle goods and services consumed by higher-income households would likely be subjected to a higher sales tax,” said Socio-Economic Research Centre executive director Lee Heng Guie.

(The Star) – The new sales and services tax (SST) is likely to cover a wider range of goods and services compared with the old SST system to generate more income for the government.

“The coverage of the new SST, especially the service tax, would likely widen due to the narrow scope of the old SST.

“Lifestyle goods and services consumed by higher-income households would likely be subjected to a higher sales tax,” said Socio-Economic Research Centre executive director Lee Heng Guie.

“As in the old SST, a 20% sales tax was imposed on alcoholic and non-alcoholic compound preparations used for the making or for the manufacture of beverages.

Another economist told StarBiz that more goods and services could be covered under the new SST to generate higher indirect tax revenue after the goods and services tax (GST) was zerorised.

Not all, however, think the scope of goods and services that will be taxed under the SST will be widened.

Alliance Bank Malaysia Bhd chief economist Manokaran Mottain said the re-introduced SST may cover a similar range of goods and services as in the previous system, at least in the near term.

“If the government introduces a wider range of goods and services to be taxed as compared to the old SST regime, there would likely be more cost to be borne by the consumer as compared with the GST.

“With the government aiming to replace the GST with the SST to reduce the rakyat’s cost of living, a wider coverage of the SST would not do justice,” he said.

Post-implementation of the SST, the Finance Ministry expected to collect RM4bil in revenue for the remaining months of this year.

Under the old SST in 2014, the government collected nearly RM17.2bil, while the GST collection in 2017 was worth RM44bil. The Finance Ministry alluded in a statement yesterday that the full-year collection for the SST could be RM21bil.

Manokaran said the government could likely cover the shortfall in revenue due to the GST’s abolition with the revenue from the SST and higher dividends from state-owned oil company Petroliam Nasional Bhd.

“Along with the administrative cost-reducing measures that have been implemented to prevent fiscal leakages, the government is expected to plug the lower revenue after abolishing the GST,” he said.

Pakatan Harapan’s election promise to scrap the GST and replace it with the SST was aimed at reducing Malaysians’ rising cost of living.

However, economists said that a significant price reduction post-SST was unlikely.

They also expected the re-introduced SST to lead to higher prices in the market, even if the indirect tax regime covers fewer products compared with the now-zerorised GST. Nevertheless, the real impact remains to be seen.

On July 16, Finance Minister Lim Guan Eng announced that the provision of services would be taxed at 6%, while the sales of goods would incur a 10% tax under the SST.

However, he did not elaborate on whether the coverage of goods and services under the new SST system would be widened compared with the previous SST regime before the introduction of the GST in April 2015.

In a statement issued yesterday, Lim said that the new SST system would benefit Malaysia’s low-income earners in the long run.

“Unlike the GST, which burdens the poor proportionately more, the new SST will also be tweaked and designed to ensure that the impact on the lower-income groups would be proportionately less. The details of the improvements would be announced when the new SST Bill is tabled in Parliament during the current sitting,” he said.

Lee said consumers could experience price hikes for several goods and services, which include consumer durables, household electrical appliances as well as dining at restaurants.

“The prices of some goods and services did not come down much after the removal of the GST starting June, and we are concerned that price pressures could build up again when the SST kicks in.

“Manufacturers who used to enjoy claimable input tax under the GST but not under the SST may pass the increased cost to wholesalers and retailers. The cascading tax and cost effects would result in higher prices for consumers,” he said when contacted by StarBiz.

Lee also recommended Malaysia’s relevant price enforcement agencies to publish a price guide of pre and post-SST on items such as basic necessities and consumer durables to raise price awareness among consumers.

Meanwhile, Manokaran also expected the prices of certain goods and services to increase post-implementation of the SST.

However, he noted that overall prices should come down compared with GST levels.

This is mainly because the 10% sales tax is a single stage tax that is imposed on a single tier within the manufacturer level, while the 6% service tax is imposed at the end-consumer level for services.

On the other hand, a 6% GST is a blanket tax system which is imposed on every tier of the supply chain from the start until it reaches the end-consumer. Therefore, the longer the line of supply chain, the larger the amount of tax that will be imposed, causing prices of goods to be much higher when it is consumed at end-level.

“The price of consumer goods besides big-ticket items such as vehicles has yet to really drop even after the removal of the GST, as a large segment of the consumer goods are already zero-rated or exempted.

“That is why consumers have not been feeling the effects of price drops in consumer goods, unless they are looking into buying big-ticket items such as vehicles, electrical goods, luxury goods and other non-necessity items.

“Therefore, we expect prices of certain goods to go up after the SST implementation such as big-ticket items, while prices of consumer goods would likely remain the same,” he said. Manokaran also pointed out that Malaysians would only enjoy significant savings if price abuses on the SST regime is monitored and regulated by the respective governmental bodies.

Last week, newly-appointed Domestic Trade and Consumer Affairs Minister Datuk Saifuddin Nasution Ismail said the overall price dip after the removal of the GST has been minimal.

Citing a survey covering 417 items, he said price reductions after June 1 were only between 0.04% and 13% for 70% of the surveyed items.