Balancing the business growth and ease of tax compliance

The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) welcomes the Government’s announcement that it is exploring to combine the elements of the Goods and Services Tax (GST) and the Sales and Service Tax (SST) to enhance the existing SST framework. While the SST will remain the tax base framework, it will incorporate some GST features to create a more efficient system without reintroducing a broad-based consumption tax.

On the record, the ACCCIM has been strongly supporting the reintroduction of GST as it is widely acknowledged that a multi-stage GST is structurally more efficient and transparent than a single-stage SST, as its input tax credit mechanism eliminates cascading compounding costs and captures broader revenue compliance. However, the government maintains that household income thresholds are still too low, choosing instead to refine the current SST and explore a targeted hybrid SST-GST framework.

Pending the Ministry of Finance conducts a comprehensive review of the proposal and prepares an official report to the Cabinet (no fixed implementation timeline or final decision has been finalized), the ACCCIM would like the Government to consider the following issues.

(1) The elimination of cascading effect is one of the most praised feature of GST as input tax credit allows businesses to claim back tax paid on business purchases and raw materials. It helps to reduce business costs, and boosts the cost competitiveness of domestic industries.

(2) The GST and SST are two completely distinct indirect tax frameworks with fundamental differences in how they are structured, legislated, and applied across the economy. Hence, it requires a comprehensive review of the proposed hybrid framework to ensure its smooth implementation.

These include aligning accounting rules and legal definitions to eliminate ambiguity for small and medium enterprises.

(3) For ease of compliance and cash flow, reduce paperwork and documentation requirements, provide automatic input tax claims with random audits conducted later, and shorten the turnover time for input tax refunds.

Overall, the proposed hybrid SST-GST framework must balance business growth and ease of tax compliance while sustaining the Federal revenue without disproportionately impacting lower-income groups and small businesses.