GST vs SST: Understanding the Key Differences for Malaysian Businesses

For any business owner in Malaysia, the topic of consumption tax is a critical one. The past decade has seen a major shift: the implementation of the Goods and Services Tax (GST) in 2015, followed by its complete removal and the reintroduction of the Sales and Service Tax (SST) in 2018.

This transition from a multi-stage tax (GST) back to a single-stage tax (SST) fundamentally changed how businesses calculate, report, and pay taxes on their goods and services. Understanding the difference between these two systems is not just a history lesson; it’s essential for proper financial management, pricing, and compliance in today’s market.

This guide will provide a clear, business-focused breakdown of GST vs. SST, explaining how the current SST system works and what it means for your business operations.

Key Takeaways

• Core Difference: GST was a multi-stage tax, where a 6% tax was applied at every step of the supply chain (from manufacturer to consumer). SST is a single-stage tax, applied only once at the point of manufacture/import (Sales Tax) or when a specific service is provided (Service Tax).
• Tax on Tax (Cascading): The GST system, with its input/output tax credits, was designed to prevent a “tax on tax” cascade. The SST system can result in a cascading effect, as tax paid at an earlier stage becomes part of the cost base for the next.
• SST has Two Parts: The current system consists of Sales Tax (typically 10% on manufactured/imported goods) and Service Tax (8% for most taxable services, with some exceptions).
• Registration Threshold: The standard registration threshold for SST is an annual turnover of RM500,000, which is a key figure for growing businesses to monitor.
• Simplicity vs. Scope: GST was broader in scope but allowed for input tax claims, making it more complex. SST is narrower in scope (fewer items are taxed) and is generally simpler for businesses to administer.

What Was GST (Goods and Services Tax)? A Brief Look Back

The Goods and Services Tax (GST) was a multi-stage consumption tax. A 6% tax was levied on the “value-added” at every stage of the supply chain.

• How it Worked (Simplified): A manufacturer paid 6% GST on their raw materials (input tax) and charged 6% GST on their finished goods (output tax). They would then pay only the difference to the government, effectively claiming a credit for the tax they already paid.
• Business Impact: This created a highly transparent but complex system. Businesses had to meticulously track all input and output taxes to make their claims. While it prevented tax cascading, it was a significant administrative burden for many SMEs.

What is SST (Sales and Service Tax)? The Current System Explained

In 2018, Malaysia reverted to the Sales and Service Tax (SST) model. This is a single-stage tax, meaning tax is charged only once along the supply chain. SST is made up of two separate taxes:

1. Sales Tax (on Goods)

This is a tax levied on manufactured goods at the point of manufacture or on imported goods at the point of importation. It is not charged again at the wholesale or retail stage.

• Standard Rate: 10% (with other rates like 5% for specific goods).

2. Service Tax (on Services)

This is a tax levied on specific taxable services provided by registered businesses (e.g., professional services like legal or accounting, hotels, F&B, digital services).

• Standard Rate: 8% (as of March 1, 2024, increased from 6% for most services).
• Exceptions: A 6% rate remains for essentials like F&B, telecommunications, and vehicle parking.

GST vs. SST: The Main Differences for a Business

Feature	GST (Goods and Services Tax)	SST (Sales and Service Tax)
Tax Stage	Multi-stage: Taxed at every step of the supply chain.	Single-stage: Taxed only once at the manufacturer/importer or service provider level.
Tax Scope	Very Broad: Applied to almost all goods and services unless “exempt” or “zero-rated”.	Narrow: Only applies to specific manufactured goods and a defined list of taxable services.
Tax Credits	Input Tax Credit: Businesses could claim back the GST they paid on their purchases.	No Input Tax Credit: Businesses cannot claim back the SST paid on their purchases. It becomes part of the product cost.
Tax Cascade	No (due to input tax credits).	Yes (a potential “tax on tax” effect can occur as the tax becomes part of the cost base).
Complexity	High: Required complex accounting for input/output tax.	Low: Simpler to administer, file, and calculate.

How the Current SST System Impacts Your Business

• Registration is Mandatory (if Eligible): You must register for SST if your total taxable turnover in the last 12 months has exceeded the RM500,000 threshold. (Note: The threshold differs for F&B operators).
• Pricing Your Products: Under SST, the Sales Tax you pay when you buy goods from a manufacturer or importer becomes part of your cost of goods. You cannot claim it back. Therefore, you must factor this cost into your final selling price.
• Invoicing: If you are SST-registered, you must issue invoices that clearly state the SST amount and include your SST registration number.
• Filing: SST-registered businesses must file their returns (Form SST-02) and pay the tax collected every two months via the MySST portal.

The Future of SST: E-Invoicing

The next evolution of tax compliance is already here. LHDN’s mandatory e-invoicing initiative will soon apply to all businesses. This means all your invoices (including those with SST) will need to be digitally validated by LHDN before being sent to your customers, further digitizing the tax process.

Did You Know?

A significant change to the SST system occurred on March 1, 2024, when the Service Tax rate was increased from 6% to 8% for most taxable services. However, key services like Food & Beverage, telecommunications, and vehicle parking were kept at the 6% rate to mitigate the impact on the public’s daily cost of living.

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Conclusion: Simplicity vs. Complexity

The shift from GST back to SST was a significant policy change aimed at simplifying the tax system for businesses and reducing the perceived cost burden on consumers. While SST is simpler to administer, it’s crucial for business owners to understand that the Sales Tax they pay on inventory becomes part of their cost. Managing your pricing and cash flow effectively, and preparing for upcoming changes like e-invoicing, are key to navigating Malaysia’s tax landscape successfully.

Frequently Asked Questions (FAQs) for Malaysian Businesses

What are the current SST rates in Malaysia?

It’s two-part: Sales Tax is generally 10% on taxable goods. Service Tax is 8% for most taxable services, with a lower rate of 6% for specific services like F&B and telecommunications.

Do I need to register for SST when I start my business?

You only need to register for SST if your annual taxable turnover is projected to exceed or has already exceeded the RM500,000 threshold. You must monitor your turnover and register within 28 days of becoming liable.

What is the main difference between Sales Tax and Service Tax?

Sales Tax is charged on goods (at the manufacturer or importer level). Service Tax is charged on services (at the point the service is provided to the consumer). A business might be registered for one, the other, or both, depending on its activities.

Is SST better than GST for my business?

It depends. SST is simpler to administer and file, which is a major benefit for SMEs. However, unlike GST, you cannot claim back the tax you pay on your purchases, which can result in a “tax cascade” that may be built into your final prices.