On Ringgit & Sense this week, producer Jake Lim sits down with Thanneermalai Somasundaram, Managing Director, Thannees Tax Consulting Services, and Dr Afzanizam Abdul Rashid, Chief Economist, Bank Muamalat in a two-parter episode on the potential impact of the expansion of the Sales and Service tax.
Image Credit: Shutterstock.com
Presenter: Jake Lim
Producer: Jake Lim
Podcast Transcription
Jake Lim:
The MADANI administration will be implementing a revised sales and service tax, also known as SST, beginning next month, 1st July 2025. And that's just a few weeks after the expansion was first announced. And as such, there's probably a lot of confusion as to how it works, especially for consumers listening to this.
That's why today on the show, we have Thanneermalai Somasundaram, Managing Director of Thannees Tax Consulting Services, in the first half to explain the ins and outs of the revised SST. And in the second half, Dr Afzanizam Abdul Rashid, Chief Economist at Bank Muamalat, will break down how businesses and consumers might be affected by this. Mr Thannee, thank you very much for joining me today.
Let's start with the basics, right? Can you walk us through the key changes under this expanded SST regime? What's being added or revised and who's newly affected by this?
Thanneermalai:
Yeah, it's sales tax. Sales and service tax has been here for quite some time already. From, first, the latest phase was from 1st September 2018 onwards. What they have done now, effectively from 1st July is added six new categories of services. You must remember, although we call it sales and service taxes, these are entirely two different taxes. We have the Service Tax Act, we have the Sales Tax Act. So, although in total, we call it SST.
Legally speaking, they're separate. So, in the services area, they added six. Construction services has been added. And it's extremely wide, construction services, you know. And the threshold for that to those who enter into that should actually have a revenue of RM1.5 million, okay? And the tax rate is 6%.
The other one is rental and leasing, which is entirely new on commercial property, not on the residential properties. It's RM500,000 threshold, 8% of the tax. The third area is financing fees. But issues like interest and the basic banking, there's going to be no service tax. But it'll be on your services that they provide. So, it's out of the products, is it? All the products, the services. And, like, for example, if they're providing you digital finance, financial advisory services, credit facilities, reinsurance, funds management, all those where they have fees, that's again, the threshold is RM500,000 and it's 8%.
Education, and they've also added that, but that's not for the Malaysians. That's, more for the people who can have—well, it is for the Malaysians who are at the higher end, whose school fees will be more than RM60,000 a year. So, if you're in private schools, pay international schools, et cetera, there's no threshold. You know, there's no basic, from zero, you have, those schools have to start from basically everyone, everybody, who is actually paying fees of more than RM60,000 at 6%.
Then you have the private healthcare. This is for the foreigners. You know, this is mainly for the foreigners. But in education, let me tell you, for the higher education, it's only for the foreigners. When you go to universities, if they come in from overseas and they have to pay fees, they're going to be added another 8%.
Private healthcare is also where private hospitals are charging, not government hospitals, not the university hospitals, et cetera. But the private hospitals who are, who actually serve foreign clients, you call them medical tourism. Now they have to pay. And again, there is no—I mean, the threshold is RM1.5 million and the tax is at 6%. They charge them.
The other area that's very interesting is if you go to the expensive, hairdressers and the wellness and the beauty care people like manicure, pedicure, massage parlours, hair styling, the threshold is RM500,000 and 8%.
So that's what—so these are the six areas that actually added onto the existing area.
Jake Lim:
And might I say, I think among at least the people I know, the, the category that has to do with your aesthetics is the one that's most talked about.
Thanneermalai:
And then the other one is the other area, remember sales tax. That's where it's going to be really impactful straight away because, really 3,400 items from the exempt list, which is zero at the moment, is being now pushed into the 5%.
Jake Lim: Can we get some examples?
Thanneermalai:
I think will be, everybody talks about it. So I'll repeat the same thing. King crab, salmon, sugar, except refined sugar. If you buy the more, other types of sugar, you're going to pay the extra. Truffle mushrooms, not normal mushrooms, only the truffle mushrooms. Imported fruits, this is now being re... There is a rethinking about whether they should be importing the apples, the oranges and all that, because you can't grow it here.
Jake Lim: Yeah, exactly. And many, many people buy them on a daily basis.
Thanneermalai:
Exactly. You know, so, and then on the industries, you've got vitamins, you've got the supplements, you've got this copper scrap, copper, cathodes, antibiotics, antibiotics that are imported, some pharmaceuticals that are imported, various textiles, from silk, cotton, wool, cocoa beans, et cetera.
Jake Lim:
How will businesses, especially small and medium enterprises, how will they have to adjust on the operational side?
Thanneermalai:
Well, basically the first thing is those who are not registered must now look at it going forwards for the next 12 months. So, they've got to estimate. So, from July, they've got to see whether they'll meet that RM500,000 threshold or the RM1.5 million.
Jake Lim: Because it's annual, right?
Thanneermalai:
It's annual. So, you've got to forecast. You've got to forecast and then register. And now, so that's the first thing they've got to do is actually looking at it. And then they've got, they basically, you see, if any small business or any business for that matter who hasn't been registered in the past, or even now, if you're registered, you need to look at your whole supply chain, which means really looking at your inputs, looking at your outputs.
On the input side, you've got to see what materials are now being taxed, what services are now being taxed. And on the output, you've got to see whether the product is actually now, you've got to subject it to the tax. What is the rate of tax? So, you have these issues in there. And also, you've got to start looking and seeing whether you can use the exemptions available. You can use the exclusions available. You can use the relief. Like, for example, you have the group relief. You've got the B2B exemptions. You've got the exclusions.
Jake Lim:
But what are your thoughts on the announcement being made only weeks before implementation? Because it seems like a very short time for businesses to adjust.
Thanneermalai:
Yeah, it has become a little bit of a habit that that habit should actually stop. But it's better than compared to last March. Last March, when they announced that logistics services and others were coming in, there was hardly—just about 10 days, they gave us.
You remember 22nd of March or something, 24th, it all came in, and there was still confusion. And then they sorted it out post-March. That was extremely short. Now, they're not better. You must actually give them, a little bit. Now, it is on the 3rd of June for the 1st of July.
So, not bad. They've now improved it from, eight days to now about 27 days. Give a pat on the back, but still significant improvement.
Jake Lim: Not great. It's not enough.
Thanneermalai:
Not enough. Not enough. I think that one, I have to be very clear that perhaps they should have been—they should have come out two months. But the other day, when Dr John was on this thing, he was very clear that they did their level best. And I know personally, because I've been also engaging them and they've been engaging myself also, they have been working, they've been burning the midnight oil.
They have been really, really working, all night and day in the Ministry of Finance. But there were so many issues and questions and calculations and all that to be done. And they really had difficulty. Perhaps they had manpower shortage. Perhaps they didn't have, the kind of, the way the incisive, analysis that could be done quickly. Maybe they underestimated the time, you know. But this has been going on for some time.
And I think they are determined. So let me tell—everybody's asking the question, like Malaysians do. Will it be postponed? Will it be postponed? You know, like the way the low-value goods tax was postponed many times. I don't think this will happen.
Jake Lim: So you think SST is here?
Thanneermalai:
SST is definitely on 1st July. And I think no point kidding ourselves and saying it'll be postponed. Let's get on with the job and actually get it implemented. 1st July is for the existing people. And 1st September will be for those new registrants, because they haven't registered yet.
Jake Lim:
And there have been calls, right, for GST to be implemented instead of this expanded SST when, the government first announced this in early June. And you said that as of right now, with their expanded scope, the GST is not much materially different from SST.
Thanneermalai:
What I'm really saying is, look, GST was good for business in the sense, you must look at businesses and consumers. Businesses in normally an indirect system like this are meant to be tax collectors. They shouldn't suffer any of that tax. They just pass it on. The person who ultimately bears in both the systems, GST or SST, is the consumer, you and I. You and I are the ones who are going to pay for it.
But the middleman under the GST is in a better position because he actually gets the input credit. Whatever he incurs, the taxes he incurs, he actually collects it back because the input is offset against the output. So he gets it back. Whereas in the SST system, the input system is not there, but instead there's a hybrid of giving you B2B exemptions and exclusions and reliefs, which doesn't exactly work through in a transparent way. So there's a cascading effect of what we call a tax on tax, because if you get something with tax and then you add on to that another RM100 to that.
But that, I guess, where the authorities are coming in from, is it, because they've tried to exclude all the basic items and only apply it on the non-essential items, so I, at the end of the day, I'm not going to go through every item and say, is this subject to in the supermarket? I'm not going to go through. And the system is opaque. The only thing is the SST, the biggest drawback, I think the biggest drawback, in my opinion, is one, there's no input. The second thing is, there is no—it's opaque because you cannot see it in the bill. Whereas in the GST, you saw it, how much you're paying. It is in the receipt. So, you know the exact price, you know the GST, whereas you don't see it in the SST. So, that opaqueness is there.
But ultimately, yes, I think the GST comes out a notch, definitely many notches better than the SST. But now we are practically collecting more or less the same.
Amount is about the same amount, the difficulties we go through. But don't forget GST had its own problems. Please don't exactly keep praising GST all the way, you know.
Jake Lim: I don't know if anyone has nostalgia for GST.
Thanneermalai:
You know, GST in 2015 to 2018, just at three years, I still have problems, lingering in 2025. If it was so nice and easy, I should not be having problems. We have so many arguments with customs and on the definitions on what they should give back. The refund was a huge problem in the GST system, you know. So, I wouldn't just simply take my hat off and say hooray to the GST, you know. I would say, SST has, even though it's a little bit less transparent, it has worked out. It has worked out. And I think the current government, the philosophy is, they're not in favour of GST because of the election manifestos, etc. They're stuck, too.