GST vs SST… Which system is more convenient?

Lately, people have been talking about SST, which is said to be imposed on a lot of goods, though not everything. Then, some folks brought up GST again and started comparing the two systems. And whenever these topics resurface, there are always those who suggest switching back to GST. But like, why though??

So, let’s talk about the current system and see which one’s more of a headache, GST or SST?

Whats’s the difference between GST and SST?

GST stands for Goods and Services Tax. It’s a type of tax that you pay when you buy most things, like food at a restaurant, clothes at the mall, or when you hire a service like cleaning or repairing. The standard GST rate in Malaysia was 6%, and it applied to most everyday items and services, unless they were specifically exempted.

Also, it is a multi-stage tax, means it was applied atevery level of the supply chain, from the manufacturer, to the wholesaler, to the retailer, and finally to the consumer.

Even though GST is charged at every step, it doesn’t stack up or increase the final price. That’s because businesses can claim back the GST they paid earlier. So no matter how many steps the product goes through, only the final buyer (usually the customer) ends up paying the tax.

Now, let’s talk about SST. It’s also a type of tax, but it works a bit differently from GST. SST stands for Sales and Service Tax, and it’s the tax system Malaysia went back to after abolishing GST in 2018. 

SST is made up of two parts: Sales Tax, which is charged on certain goods when they’re made or imported, and Service Tax, which is charged on specific services like hotel stays, restaurant food, or phone bills. The rates are usually 5%, 6%, or 10%, depending on the item or service. 

To make easier to understand la, you can refer to this table:

So which one is better between GST and SST?

One of the good things about GST is that it’s pretty efficient and transparent. It’s added at every step when stuff is made and sold, but businesses can claim back the tax they’ve already paid, so no double paying and hidden tax. This makes it easier to keep track of everything, and the government can collect tax in a fairer way. Since almost everything is taxed, everyone chips in, even tourists. It also helps the country to not rely too much on things like oil revenue or income tax.

But even though it sounds efficient, a lot of people felt the pinch in a rise in the cost of living. Prices went up, especially for everyday stuff like food, shampoo, and cleaning products. For lower and middle-income folks, that was a big deal. When things get more expensive, people just buy less, not because they want to, but because they have to.

Meanwhile, one of the main reasons people like SST is because it’s simple. Only certain goods and services are taxed, so you don’t see tax added to everything you buy. This can help keep the cost of living lower for many items. Plus, SST focuses primarily on manufacturers and service providers, which reduces the tax burden on the consumers.

But SST has its downsides too. Businesses can’t claim back the tax they’ve already paid (unlike with GST), they may quietly pass the cost on to customers by raising prices. This can lead to hidden price increases, and consumers may not even realize they’re paying more. On top of that, because the tax is collected earlier in the supply chain, it’s harder to track, and some businesses might find ways to avoid paying it altogether.

And because the SST system is not very transparent and daily transactions are difficult to record, leading to various concerns about the system, the government introduced e-invoicing.

E-invoices make it easier to track

Now, let’s talk about e-invoicing, Malaysia’s big push to go digital with tax stuff. It’s like swapping out paper invoices for a digital version that’s easier to track and harder to mess up.

Basically, an e-invoice is a digital record of a transactional exchange between a seller and a purchaser. It goes through the government portal in real time for validation and recordkeeping. Every invoice has to follow a standard format now, with must-have details like who’s selling, who’s buying, what’s being sold, how much, the tax, total cost, and payment info. These are key to keeping things legit for taxes.

Starting August 1, 2024, The Inland Revenue Board of Malaysia (IRBM) has made it mandatory for all registered businesses in Malaysia to create e-invoice for every transaction.

Businesses above a certain turnover threshold have already begun switching to e-invoices. Malaysia’s switching to e-invoicing to make tax stuff digital and smooth. Instead of rolling it out all at once, they’re doing it in phases based on how much money a business makes.

The Inland Revenue Board (IRBM) has to check and approve every e-invoice, including invoices, credit notes, debit notes, and refund notes via MyInvois portal or API integration.

For now, it looks like we’ll be staying with SST…

While GST had its benefits, it just wasn’t the right fit at the time, especially when people feel it made things more expensive and people started feeling the pressure. 

On the other hand, SST might not be everyone’s cup of tea, but it seems the government is trying to improve on the system through initiatives like e-invoice.

How about you? Which system would you prefer?

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