THE Federation of Malaysian Manufacturers (FMM) has urged the Government to make input tax credits a key consideration in its study of incorporating selected features of the Goods and Services Tax (GST) into the existing Sales and Service Tax (SST) framework.
FMM president Jacob Lee Chor Kok said allowing businesses to claim credit for eligible sales and service taxes incurred on inputs would help reduce the cascading effect of taxation and prevent taxes imposed on business inputs from becoming an additional cost throughout the supply chain.
“This is important to ensure that taxes imposed on business inputs do not continue to become additional costs in the supply chain, which would ultimately increase production costs.
“Any new mechanism introduced must also be simple, transparent and not increase compliance costs for businesses, while helping to maintain the competitiveness of Malaysian industries and exports,” he told RTM.
FMM proposed that eligible sales and service taxes incurred on business inputs be allowed as credits or offset against tax liabilities.
Lee said the mechanism should cover eligible costs including raw materials, machinery, logistics and transportation, factory rentals, construction of production facilities, financing and other business services.
He also called for GST-style zero-rating, credits, rebates or equivalent refunds for eligible upstream taxes directly linked to the production and distribution of essential goods.
“This will ensure that the policy objective of keeping essential basic goods tax-free is achieved throughout the entire supply chain and not only at the final point of sale,” he said.
FMM also called for the principle of tax neutrality to be applied to exports so that Malaysian goods shipped overseas would not carry accumulated domestic consumption taxes within their production costs.
“Malaysian exports should not bear accumulated domestic consumption taxes in the cost of the product. Therefore, eligible sales and service taxes incurred in the production and delivery of exported goods should be allowed to be credited, rebated or refunded,” he said.
Lee said the Government should also consider replacing multiple category-specific exemptions and reliefs with a more systematic credit or rebate mechanism.
Such an approach, he said, would help reduce tax-on-tax effects and provide more consistent tax treatment across different business models and supply chains.
“The current SST framework relies on various exemptions and reliefs that differ according to the type of goods, services, transactions and eligibility conditions.
“While these measures provide relief in certain circumstances, they do not address the issue of cascading taxes consistently throughout the business supply chain,” he said.
FMM further called for a reliable and automated refund mechanism with clearly defined timelines.
Lee said any new credit mechanism should be supported by enforceable refund deadlines, simple verification procedures and risk-based audit controls.
He also proposed that the Government make full use of the e-Invoicing infrastructure to digitally verify business transactions, improve transparency and strengthen safeguards against fraud.
Such measures, he said, could support more efficient tax credit and refund mechanisms without increasing compliance burdens, particularly for small and medium-sized enterprises (SMEs).
“FMM’s position that GST remains the preferred indirect tax framework for the long term remains unchanged. At the same time, FMM recognises the Government’s intention to retain SST as the basic taxation system at present,” he said. - August 20, 2026
