KUALA LUMPUR (June 21): The Institute for Democracy and Economic Affairs (IDEAS) urges the new Government to provide for greater transparency and fairness in implementing the new sales and services tax (SST) that will come in by September, and not just simply revert to the old SST regime.
It said this after noting the criticism of the previous SST regime, where the sales tax component of the final price paid for goods was not known to consumers, unlike the abolished goods and services tax (GST), which had improved transparency of pricing as businesses were required by law to state the amount of GST charged in any given receipt.
Hence, in a brief paper on recommendations for the new tax regime, which IDEAS has dubbed the "the reformed SST" or RSST, it urged the Government to maintain the same level of transparency as the GST regime by requiring businesses to state the amount of sales tax paid for a given product in the final receipt.
"This will require this information to be passed from the manufacturer along the supply chain to the retailer so that they can provide the information to the consumer. Businesses should not be required to report all their costs, or how much profit they are making, but since the sales tax is intended to be passed to the consumer, it is reasonable to require that the exact amount is made known to them," it said.
Such a requirement will also support the Government in enforcing fair practice among businesses once the new tax is introduced, it said.
Lessons learned from both the rocky implementation of the goods and services tax (GST) and the old SST should be taken into account in implementing the new tax system, it added.
As such, it suggested that the RSST be a single-stage tax without refunds, set at an initial standard rate of 5% for both the sales tax and service tax elements — and for different products — to reduce complexity and variability in prices.
"Even if the rate for RSST is set at 6% or higher, the amount is likely to be lower than under GST, as the tax is only applied at the initial stage," it said.
The sales tax component should only be paid at the initial stage of distribution, unlike the GST that was paid at every stage of the process, it said. "Businesses were able to offset GST paid on inputs against GST received. However, this led to a complex, burdensome and time consuming process for filing refunds," it noted.
By returning to single-stage taxation, businesses won't be required to file any refunds and their payment to the treasury will be considered final liability. "This will also increase the working capital which is critical to healthy functioning of all firms, but particularly SMEs, which are often run on private equity," it said.
IDEAS also recommends that the RSST maintain the exemptions of the GST regime, including the 30 plus items that were zero-rated. "The coverage of taxable goods and services should also remain as it is under the GST regime," it said.
The Government should also maintain the current practice from the GST regime of exempting the export of goods and services from the RSST to encourage development of Malaysia’s export sectors, it added.
To ease the burden on small businesses, the GST's minimum threshold of RM500,000 of taxable return per annum should also be kept — and not be reverted to the RM100,000 threshold under the old SST — while tax payment should be made as simple as possible, with standardised and simplified administration procedures that incorporate the best practices of GST.
Those who meet the minimum threshold should be registered under the Royal Malaysian Customs, which will increase transparency of the tax system and enable customs officials to more easily identify businesses that are trying to escape from paying the new tax.
The government should also establish a fund of RM100 million to smoothen the transition, and ensure greater compliance to the new tax regime, just like how it established a similar fund to compensate for the costs associated with the introduction of GST.
"The government’s decision not to have GST will create extra disturbance for businesses and conversion to the new RSST platform will entail additional costs for businesses. We recommend an allocation of RM100 million for all SMEs, to cover the cost of installing software and imparting necessary training," Ideas added.