Merge aspects of GST, SST into harmonised consumption tax, govt told

KUALA LUMPUR – The government has been urged to consider the possibility of merging or “harmonising” aspects of the country’s existing Sales and Service Tax (SST) and the now-abolished Goods and Services Tax (GST), rather than reintroducing the latter.  

Referring to the proposed integrated tax system as the “Harmonised Sales and Services Tax” (HSST), former Customs Department director-general Datuk Seri Subromaniam Tholasy said it would be an improved version of the SST and also have elements of the GST, adding that the latter is the most ideal consumption tax.

So the current SST needs to be improved by combining both sales tax and service tax into one single tax act and one harmonised rate,” he said.

“Or we have another option which is to provide bridging between those two (sales tax and service tax).”

Subromaniam was speaking at a webinar titled Harmonising Sales and Services Taxes: The Better Alternative to Reintroducing GST organised by the Malaysian Institute of Economic Research yesterday.

The GST was introduced by the Barisan Nasional government in 2015 at a rate of 6%, and was later terminated by Pakatan Harapan (PH) when it took power after the 2018 general election. The PH administration replaced it with the SST.

While acknowledging that the GST is the best consumption alternative, Subromaniam said it could be politically sensitive at this point in time to reintroduce it, especially with the current pressures due to inflation.

Under the current SST laws, Subromaniam said, there are about 800 items that attract 5% sales tax and 5,600 items that attract approximately 10% sales tax.

Meanwhile, under the GST, over 11,000 items were taxed when it was active.  

If the government does not want to reintroduce GST, this is another proposal where they can broaden the base of items or goods under SST to about 8,000 items and keep it at a single-stage tax, that is the sales tax. 

In addition, such a move would have less impact on the consumer price index (CPI), he said.

Noting that the current CPI basket for goods under the SST is about 37%, he said there would be a lot of potential under the HSST to broaden it to 65%.

Elaborating further, he said that the proposal for a single harmonised rate must not be too low. 

“At 8%, it will give more than revenue-neutral SST. In fact, the government can get close to an additional RM10 billion (in revenue).” – The Vibes, July 30, 2022