Understanding Sales and Service Tax (SST) in Malaysia

Discover the essentials of Sales and Service Tax (SST) in Malaysia, including rates, registration requirements, and penalties.

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If you’re doing business in Malaysia or planning to establish operations in the country, it’s crucial to familiarize yourself with the Sales and Service Tax (SST) system. This tax regime has a significant impact on various aspects of your business, from pricing strategies to compliance requirements.

In this article, we will take a look at the essentials of Sales and Service Tax (SST) in Malaysia including the rates, registration requirements, and penalties.

What is SST in Malaysia?

The Sales and Service Tax (SST) is a consumption tax on goods and services in Malaysia. It was reintroduced on September 1, 2018, replacing the 6% Goods and Services Tax (GST) system that was in place from 2015 to 2018.

The SST comprises two separate tax components:

1. Sales Tax

The Sales Tax is a single-stage tax imposed on importing and manufacturing goods in Malaysia. Businesses either need to pay it at the point of importation when the goods are declared for customs clearance or when the goods are manufactured and sold for the first time in the country.

The current sales tax rates in Malaysia vary depending on the type of goods involved. Here are the general rates:

• 5% Sales Tax: For non-essential food items and building materials
• 10% Sales Tax: Applied to most manufactured goods, including electronics, vehicles, and clothing.
• Specific Rates: Applied to petroleum products and other selected items

2. Service Tax

The Service Tax is a tax charged on specific taxable services provided in Malaysia by a registered person. It applies to services such as accommodation, food and beverage, professional services, and several other prescribed services.

Effective March 1, 2024, the Service Tax rate in Malaysia has been increased from 6% to 8% for most taxable services. However, some services remain at the old 6% rate, including:

• Logistics, warehousing, courier, transport, and supply chain services
• Food and drink services
• Telecommunication services
• Parking services

Additionally, two new services have been made subject to Service Tax:

• Financial brokerage and underwriting services
• Karaoke services

The Royal Malaysian Customs Department (RMCD) has outlined three scenarios for the Service Tax rate increase:

1. Services Fully Provided Before March 1, 2024: The 6% rate applies.
2. Services Started Before March 1 and Completed by August 31, 2024: The 6% rate may apply if the invoice was issued and paid before March 1. If unpaid by March 1, a new invoice at 8% is required.
3. Services Provided After March 1, 2024: The 8% rate applies.

Goods Expeted from Sales Tax in Malaysia

According to the Sales Tax (Goods Exempted from Tax) Order 2018, various goods are exempted from sales tax in Malaysia. This means that businesses dealing with these products do not need to charge sales tax on them.

Here are some of the goods that are exempted from the sales tax:

• Exported Goods: All goods manufactured for export.
• Essential Food Items: Live animals, fish, seafood, meat, milk, eggs, vegetables, fruits, and bread.
• Publications: Books, magazines, newspapers, journals, periodicals.
• Bicycles: Including parts and accessories.
• Mineral Substances and Chemicals
• Pharmaceutical Products: Medicines, medical creams, cough syrups, bandages, multivitamins & mineral medicaments.
• Agricultural Inputs: Fertilizers and insecticides.
• Goldsmith Articles: Gold, platinum jewelry, silver tableware.
• Tax-Free Raw Materials: Registered manufacturers can import or acquire raw materials tax-free for manufacturing taxable goods.

Registration for Sales and Service Tax in Malaysia

Registration for SST in Malaysia is mandatory for businesses that meet certain criteria. Here are the key registration requirements:

Requirements to Register for Sales Tax in Malaysia

Manufacturers or importers with a sales value exceeding RM 500,000 in the past 12 months must register for sales tax.

Under Section 14 of the Sales Tax Act 2018, It is also possible to register for the sales tax voluntarily if your annual sales value is below RM 500,000.

Requirements Register for Service Tax?

In Malaysia, most service providers need to register for service tax if their annual taxable turnover exceeds RM 500,000. However, there are specific requirements for certain service providers:

• Mandatory Registration Regardless of Turnover: Credit card/charge card service providers and forwarding agents must register for service tax regardless of their annual sales value.
• Higher Threshold for Food and Beverage Services: Operators of restaurants, bars, snack bars, canteens, coffee houses, and any place providing food and drinks must register if their annual taxable turnover exceeds RM 1,500,000 unless exempted.

To register for SST in Malaysia, businesses need to submit the relevant forms and supporting documents to the Royal Malaysian Customs Department (RMCD). To make the process easier, Emerhub will gather all the necessary documents and register for SST on your behalf.

Once registered, we will provide you with an SST number that you will include on invoices and tax returns.

Penalties for Sales and Service Tax (SST)

Failure to comply with SST regulations in Malaysia can result in severe penalties and legal consequences.

For instance, not filing your SST returns or non-payment of the collected SST amount can lead to a fine of up to RM50,000, imprisonment of up to three years, or both.

Similarly, there are penalties for late payment which vary depending on the number of days you delay the payments.

Here is a table outlining the late SST payment penalties in Malaysia:

Simply Your SST Registration and Filing in Malaysia with Emerhub

Ensuring full compliance with Malaysia’s Sales and Service Tax (SST) can be complex, especially for businesses new to the country. Emerhub simplifies this process by handling all aspects of SST registration and filing for you.

Fill out the form below and we will put you in touch with one of our experts in Malaysia.