Most small and medium enterprises (SMEs) welcome the implementation of the Sales and Services Tax (SST) in September.
SST could reduce the cost of doing business as it is a less complicated tax system than the Goods and Services Tax (GST), says Koong Lin Loong, chairman of the SMEs and human resources development committee at the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM). “The reduction in the cost of doing business will mainly come from the lower compliance costs,” he adds.
Koong says business owners will be able to record transactions easily without the input and output tax mechanism under GST. Even companies that make unintentional mistakes could be penalised by the Royal Malaysian Customs Department under the previous tax regime.
“Business owners will be able to do it [record the business transactions] in an accounting book. They could do it manually if they wanted, without any software. It will be much simpler,” he says.
Distributors and retailers will be excluded from SST as the tax will only be imposed on manufacturers and importers. “The SME industry has a lot of distributors and retailers. So, it is good news for them,” says Koong.
Small businesses with annual sales of less than RM500,000, which are not required to register for GST, will also benefit from the change in tax regime.
“The 6% GST was borne by two parties — businesses that had not registered for GST and the end-consumer. The former had to bear the cost because they could not get a refund for their input tax. But under SST, small businesses will not have to pay input tax. Thus, it reduces their cost of doing business,” says Koong.
Datuk Michael Kang, national president of the SME Association of Malaysia, concurs. He says SST could help reduce SMEs’ compliance costs as it is more straightforward than GST.
“You had to hire a consultant and extra employees [to keep track of the input and output tax] with GST. These made up the extra costs. Then, when you did not get the numbers right, even if it was unintentional, you got penalised,” he points out.
Koong says that at its peak, about RM17.2 billion was collected per year under SST while about RM40 billion was collected under GST. This is despite the fact that SST had a rate of 5% to 10% while GST was only 6%. “That is because under GST, businesses at every level of the supply chain were taxed,” he adds.
Koong, who has met with the Ministry of Finance on behalf of ACCCIM, hopes that the government will implement a transition period of three to six months after Sept 1 so that SMEs can meet the SST requirements. “We hope there will be no penalty imposed on SMEs during the transition period as they will be adapting to the new tax regime. Businesses have many things to adjust,” he says.
Both Koong and Kang hope the government will maintain the SST rate at about 6% in the near future so that businesses will not need to make huge changes to their product pricing and software system. They say the government could raise or lower the tax rate later, depending on its policies and the economic situation.
Koong urges the government, particularly the Ministry of Domestic Trade, Cooperatives and Consumerism, to monitor the prices of goods and services before implementing SST. He says some business owners could anticipate an increase in the tax rate and hike prices, which is unethical and unacceptable. “The ministry should use the Anti-profiteering Act to penalise this group of people,” he adds.