Threshold for annual sales tax to be raised to RM500,000 under SST

Finance Minister Lim Guan Eng. (Youtube screengrab)

KUALA LUMPUR: The government will increase the annual sales threshold for eligibility to register for the sales tax to RM500,000 annually under the sales and services tax (SST) from RM100,000 previously.

Finance Minister Lim Guan Eng said the annual turnover threshold of RM500,000 would also apply to manufacturers who carried out sub-manufacturing activities, for which the annual sales threshold was previously RM20,000.

“This is to enable small-sized manufacturers to operate without having to pay this tax,” he said when tabling the Sales Tax Bill 2018 for the second reading at the Dewan Rakyat today.

Lim said the government only expected 27,456 manufacturers to be registered under the sales tax compared to 32,725 under the goods and services tax (GST).

He said most manufacturers would fall out of the scope of the sales tax, which would eventually reduce the cost of tax compliance and administration for small-sized manufacturers.

Lim also said tax-free input facilities would continue to be extended to manufacturers, such as the implementation of the sales tax through tax exemption.

“Tax exemption will be granted on purchases of raw materials, components, packaging materials and manufacturing aids through imports or from registered manufacturers,” he added.

Meanwhile, Lim said the implementation of the SST would increase the purchasing power of consumers as the quantity of goods and services taxed under the regime would be significantly lower than those under the GST.

“The SST accounts for only 38% of the basket of goods and services of the Consumer Price Index (CPI). This is much lower than the total CPI of goods and services imposed under the GST, which is 60%,” he said.

On the CPI subcomponents on the supply of housing, water, electricity, gas and fuel, he said only 28% of goods and services would be taxed under the SST compared with 59% under the GST.

If the SST is not approved, he said the government would lose RM4 billion from what was expected to be collected, and the current balance would be in a deficit situation.

“A current balance deficit means that the federal government’s revenue is insufficient to cover management costs, and this will affect the credibility of the Malaysian economy in the eyes of the world, including credit rating agencies,” he said.