STA urges return of GST with better execution, public trust

Borneo Post

28-07-2025

Ting said the success of any tax reform, be it the Sales and Services Tax (SST), whose expansion came into effect on July 1, or a future GST 2.0, hinges on public trust.
KUCHING (July 28): The government is urged to consider reintroducing Goods and Services Tax (GST) with improved execution to balance revenue needs, ease of doing business and public welfare.
In making this call, Sarawak Timber Association chief executive officer Annie Ting said the success of any tax reform, be it the Sales and Services Tax (SST), whose expansion came into effect on July 1, or a future GST 2.0, hinges on public trust.
She added that any efforts to strengthen Malaysia's fiscal position must be built on a foundation of transparency and accountability.
'Without addressing crucial points such as leakages and ensuring the responsible use of public funds, even well-designed tax measures will struggle to gain the necessary public and business support.
'As such, the government should prioritise holistic fiscal reform that fosters confidence and ensures that the tax burden is managed with integrity for the benefit of the entire nation,' she said in a statement today.
While the government has defended the expanded SST as a necessary measure to diversify revenue to strengthen the country's financial position, Ting said this expansion, which coincided with the Phase 3 e-invoice rollout, has left businesses scrambling to adapt to new compliance requirements on a tight deadline.
She explained that while consumers may receive temporary relief, businesses face a permanent increase in complexity and cost.
Ting pointed out that the cascading tax effect inherent in the SST system remains, where taxes accumulate through the supply chain, ultimately raising the cost of doing business.
'For industries like timber, the reclassification of previously exempt goods such as sawntimber and plywood into the five or 10 per cent sales tax bracket presents a significant challenge.
'This situation is further complicated by the intricate sales tax exemption mechanisms for raw materials, which create compliance burdens for manufacturers producing both taxable and non-taxable goods. These industry-specific issues highlight a disconnect between broad fiscal policies and the granular realities of business operations,' she said.
Ting regretted that the expanded SST has inadvertently resulted in increased complexity and confusion regarding compliance matters.
Under the current sales tax mechanism, she said exemption facilities are available for components and input raw materials used in the manufacturing of both taxable and exempted goods, subject to the fulfilment of pre-requisite conditions imposed by the government.
According to her, this creates significant challenges for businesses involved in the production of both taxable and non-taxable products, as it complicates the segregation and compliance process.
Given this, she called for further engagement with the relevant authorities and consultation with professional tax advisers to clarify these issues and avoid potential penalties arising from incomplete understanding or misinterpretation of the rules.
Malaysia first introduced GST at a rate of six per cent on April 1, 2015 to replace SST. However, following a change in government on May 9, 2018, GST was abolished and SST reinstated.
GST is a broad-based, multi-stage consumption tax where businesses act as collectors, remitting only the net tax (output tax minus input tax) to the government. Businesses do not bear any additional tax or suffer any embedded tax cost, except for the administration of compliance matters. This system ensures that the final tax burden falls on the end consumer, making it transparent and efficient.
For GST compliance requirements, businesses' GST-compliant accounting software automates calculations, reducing errors and evasion.
GST covers nearly all goods and services, increasing government revenue without excessively burdening any single sector. Particularly, certain basic groceries and essential services may be zero-rated or exempt to alleviate price increases for the low-income groups.
In contrast, Ting said SST is a narrow-based, single-stage tax imposed at manufacturing/import (Sales Tax) and on selected services (Services Tax).
'Since businesses cannot claim input tax credits, taxes accumulate through the supply chain. Thus, it increases cost of doing business. Its coverage is relatively limited, hence reducing revenue potential and creating distortions in the market.
'The many different exemption mechanisms and facilities, introduced to minimise tax impact to certain categories of people and market, complicate tax compliance, thus increase audit risks and penalties.
'Businesses face higher costs, which will be passed on to business supply chain and eventually the end consumers. Though few strategies are put in place to reduce cost impact to the SMEs (small and medium enterprises), they are likely challenged with higher costs of purchase for goods and services,' she explained.
With this, she believes that businesses generally welcome a GST regime compared to SST regime, especially the expanded SST.
Ting said this is because most businesses already have GST-ready accounting systems, and their accounting personnel are also familiar with compliance procedures from the previous implementation from April 2015 to August 2018.
She added that a re-introduction of GST may not require a long preparation of 18 months like when it was introduced in 2015, but a short six-month preparation would suffice for its smooth re-implementation.
As previously experienced, she said GST brings in higher and stable revenue for the government, which is crucial for economic stability and development funding.
To mitigate a price increase, which may be one-off and inflation, Ting opined that GST 2.0 could be introduced at a low rate of three instead of six per cent.
'Targeted subsidies to B40 households such as direct cash aid can be dispatched to offset increased price effects. Basic groceries and essential services such as education and healthcare services may be zero-rated or exempted.'
Ting said while the expanded SST aims to boost government revenue, its structural flaws—cascading taxes, narrow coverage and compliance burdens—make it inferior to GST.
'The reintroduction of GST, with better public engagement, clear government support implementation and safeguards for low-income groups, would provide a more efficient, transparent and sustainable tax system,' she added.
Ting said Malaysia's fiscal health requires a stable revenue stream, and GST—despite past controversies (such as slow refund)—remains the best option for long-term economic resilience.
'Rather than simply introducing new taxes or expanding the scope of the SST, the focus should be on restoring public trust and ensuring the responsible use of public funds. A fair and effective tax system can only succeed when revenue is managed holistically and with integrity,' she added. government GST lead Sarawak Timber Association SST