Sales and Service Tax (SST) in Malaysia – A Complete Guide

A Guide to Sales and Service Tax (SST) in Malaysia

The Sales and Service Tax (SST) in Malaysia is a new consumption tax regime in the form of a single-stage consumption tax regime under the Royal Malaysian Customs Department (RMCD). SST replaced the Goods and Services Tax (GST) with effect from 1 September 2018. As its name indicates, it is comprised of two independent taxes levied on two separate taxable goods or services. Sales Tax is levied on products and charged when manufacturing or importing products across Malaysian borders. Moreover, Service Tax will apply to taxable services provided by businesses that are registered to charge Service Tax. SST applies either when manufacturers have sales above RM 500,000 in a year or service businesses have turnover over RM 500,000 a year.  The business must know its compliance obligations. This includes determining the registration requirements, properly charging tax when receiving payment for taxable products or services, and filing returns timely to avoid penalties that may be imposed under the law.

Recent Amendments

The SST regime is subject to periodic updates. Here are critical recent changes: 

• Raise in Rate of Service Tax (2024): With effect from 1st March 2024, service tax rate on certain classes of services (covering brokerage, logistics, adjustments/assessments, and IT-enabled services) has been increased from 6% to 8%.
• Broadening of Taxable Services (2023-2024): The taxable services have been broadened by bringing in new digital services and logistics-related activities.
• Low-Value Goods (LVG) Tax (2024): Low-value goods of under RM500 that are imported through e-commerce are charged a 10% Sales Tax starting from January 1, 2024, in order to put them on par with domestic business.

As a final remark, businesses have to check the official website of the RMCD periodically for new announcements and instructions.

What is Sales and Service Tax (SST)?

SST is an indirect tax system comprising two distinct taxes. Service Tax is a single-stage consumption tax on activities deemed taxable services within Malaysian jurisdiction boundaries offered by registered companies. Unlike the multi-stage GST, the Sales and Service Tax (SST) is charged and collected on a single supply chain level, i.e., on the goods during the manufacturing/importing stage and on the services during the service-rendering stage.

Scope & Applicability

1. Sales Tax Applicability:

• Applies to goods manufactured in Malaysia by a registered manufacturer.
• It pertains to imported items, regardless of the registration status of the importer.
• Manufacturers are required to register when the annual sales value of taxable goods exceeds RM500,00.

2. Service Tax Applicability:

• It extends to taxable services rendered in Malaysia by means of a registered business.
• Registration for service tax becomes compulsory if in the preceding 12 months the firm’s revenue from taxable services is above RM 500,000.
• Taxable services are defined in the Service Tax Regulations 2018. Some of them are: professional services such as accounting and law, catering, hotel and lodging, telecommunication, advertising, and information technology.

SST Registration Process

Registration is mandatory once a business exceeds the prescribed threshold.

• Determine Liability: Assess if your business activities and turnover exceed the thresholds for Sales Tax (manufactured goods) or Service Tax (taxable services).
• Apply Online: Submit an application via the MySST System within 30 days of becoming liable.
• Receive Certificate: Upon approval, the RMCD will issue an SST registration certificate with a unique number. Businesses must display this number on invoices.

Failure to register is an offence and can lead to penalties.

Compliance Process & Requirements

 

• Charging Tax: An appropriate rate of Sales Tax or Service Tax on taxable goods or services must be charged by registered traders.

• Issuing Tax Invoices: For each taxable supply, a tax invoice with some details like business and customer name, SST registration number, description of service/goods, amount charged, and amount of tax shall be issued.

• Record Keeping: Business and accounting records should be maintained by the businesses for a minimum period of 7 years.

• Filing Returns: Registered persons must file periodic returns (SST-02 form) and pay the tax due.

Deadlines, Timelines & Payment

• Sales Tax: Payment and returns are typically due every 6 months.

• Service Tax: Payment and returns are typically due every 2 months, based on the service class.

The return and payment should be submitted on the last day of the month following the end of the taxable period.

Penalties for Non-Compliance

The RMCD has government-mandated penalties for non-compliance to promote compliance. The major penalties include:

• Filing Your Returns Late: The punishment could be as much as RM50,000 and a compounded punishment not greater than RM1,000.  
• Late Tax Payment: The fine is a charge of 10% of the unpaid amount after 30 days and another 5% of the amount unpaid after 30 days.  
• Filing Inaccurate Returns: A penalty not exceeding three times the overall tax, imprisonment for up to 5 years, or even both.  
• Nonregistration: The fine limit is RM5,000 with a maximum of RM50,000 or jail of up to a maximum of 3 years or both.

 

SST vs GST: Important Differences

Feature	SST (Current)	GST (Prior)
Tax Stage	Single-stage (Manufacturer/Importer)	Multi-stage (every level of the supply chain)
Tax Incidence	Less clear, could have a cascading effect	Clear, input tax credits
Number of Registrants	Lower (approx. 50,000 estimate)	Higher (approx.472,000 peak)
Administration	Simpler for some, complex for manufacturers	More complex for all businesses in the chain
Consumer Impact	Tax is embedded in the price of goods	Tax is visibly added at point of sale

FAQs

1. Who is liable to pay Sales Tax?

The manufacturer is liable for goods made locally, and the importer is liable for imported goods. However, the cost is ultimately borne by the end consumer.

2. Are exports subject to SST?

No, both Sales Tax and Service Tax are zero-rated for exported goods and services, making Malaysian exports more competitive.

3. Can a business claim input tax credit under SST?

No, unlike GST, the SST system does not have an input tax credit mechanism. Tax paid on business inputs becomes a cost.

4. What is the difference between exempt and zero-rated?

Zero-rated means the supply is taxable but at a 0% rate, allowing businesses to claim refunds on inputs. Exempt means the supply is not taxable at all, and businesses cannot claim refunds on inputs.

5. How do I know if my service is taxable?

You must refer to the exhaustive list provided in the Service Tax (Prescribed Services) Regulations 2022 on the MySST portal or consult with a tax advisor. Common taxable services include consulting, accounting, legal, and food & beverage services.  

Conclusion

Malaysia’s SST system has threshold limits for manufacturers and service providers and is meant to provide a simpler alternative to the GST. However, it requires taxpayers to carefully manage SST on their respective business supplies to avoid its cascading tax effect. Ultimately, SST is intended to generate some form of revenue for the government without causing serious dereliction in the entire supply chain. From the perspective of business, other than compliance requirements when reporting in order to avoid severe penalties for late filing or incorrect return submissions, the real benefit of compliance is that you are establishing a plausible and legitimate operation. Compliance should facilitate the operation of the business and mitigate the risk of damage to the reputation of a company.

Being aware of the most recent guidelines introduced by the RMCD, such as the changes to the rate of SST, will not solely ensure compliance with legislation but will strategically place you in a better position business-wise.

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