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Malaysia’s 8% SST and its impact (2023)

A comprehensive analysis.

Nov 14, 2023 | Tax

10-Minute read
Table Of Contents
  1. The SST Increase Proposal →
  2. Exemptions →
  3. Extension of Taxable Services →
  4. Capital Gains Tax →
  5. High-Value Goods Tax →
  6. Comparison to Regional Counterparts →
  7. Global Minimum Tax →
  8. Impact on High Growth-High Value Sectors →
  9. Business Implications →
  10. Final Words →
In an attempt to boost national revenue, Malaysia’s Prime Minister, Datuk Seri Anwar Ibrahim, has unveiled a plan to raise the sales and service tax (SST) from the existing 6% to 8% as part of the 2024 Budget. This article aims to explore the potential ramifications of this change, including its effects on various sectors and the Malaysian public.

The decision to increase the SST is part of a broader taxation reform strategy aimed at expanding the country’s revenue base. While the government has acknowledged the need for a careful balance to prevent undue burden on the majority of the populace, these adjustments are seen as necessary to maintain fiscal stability and sustain economic growth.

The SST Increase Proposal

The proposal to increase the SST by 2% was tabled during the 2024 Budget announcement. The change targets selected services and industries, and is designed to be implemented in a manner that minimizes the impact on the average citizen.

“The tax collected by the government is one of the lowest in Asean at 11.8 per cent of gross domestic product compared to Singapore (12.6 per cent) and Thailand (16.4 per cent)” – Datuk Seri Anwar Ibrahim

Exemptions

To protect essential consumer spending, certain services such as food and beverages (F&B) and telecommunications will be exempt from the SST increase. This exemption is in line with the government’s commitment to ensuring that essential expenses remain manageable for the majority of the population.

Extension of Taxable Services

The government also plans to widen the scope of taxable services in 2024. Services such as logistics, brokerage, underwriting, and karaoke, which are currently not subjected to service tax, will be included under the new tax regime.

Capital Gains Tax

Starting from 1st March 2024, the government will implement a capital gains tax on the disposal of unlisted shares by local companies. The tax rate is set at 10%, but exemptions may be granted in selected circumstances, such as the disposal of shares for initial public offerings (IPOs), internal restructuring, and venture capital firms, subject to certain conditions.

High-Value Goods Tax

The Prime Minister also proposed the implementation of a high-value goods tax, ranging from 5% to 10%, on certain high-value items. Items like jewelry and watches that exceed a certain value threshold will be subject to this tax.

Comparison to Regional Counterparts

The introduction of the capital gains tax brings Malaysia in line with several Southeast Asian countries that have imposed a similar tax, including Thailand (20%), Indonesia (22%), Vietnam (20%), Cambodia (20%), and Myanmar (10% for non-oil and gas sector).

Global Minimum Tax

As part of Malaysia’s commitment to keeping up with international tax standards, the government plans to impose a global minimum tax by 2025. This tax will target companies with global income exceeding €750 million per annum.

Impact on High Growth-High Value Sectors

To support industries listed under the high growth-high value category, the government intends to provide tiered reinvestment tax incentives in the form of an investment tax allowance of up to 100%. These sectors include electrical and electronics (E&E), digital and technology-based industries, agriculture, and rare-earths.

Business Implications

Changes in the Sales and Service Tax (SST) in Malaysia can have significant implications for businesses operating in the country. The SST directly impacts the cost structure of goods and services, influencing pricing strategies and consumer behavior. Businesses may need to adjust their pricing models to accommodate the new tax rates, which could affect profit margins and competitiveness. Additionally, changes in SST may necessitate updates to accounting systems and processes, leading to increased compliance and administrative burdens.

The overall economic environment may also be influenced as consumer spending patterns and business investments respond to the adjustments in taxation. Therefore, businesses in Malaysia need to closely monitor SST changes, adapt their operations accordingly, and develop strategic plans to navigate potential challenges and opportunities arising from shifts in the tax landscape.

Final Words

As Malaysia navigates the economic landscape in the face of these proposed tax reforms, it will be crucial for both the government and the public to keep a close watch on the potential impacts. The success of these reforms will hinge on the government’s ability to strike a balance between generating revenue and ensuring that the burden of taxation does not disproportionately affect the less affluent sectors of society.

While some see these changes as necessary to finance public expenditure and narrow the fiscal deficit, others express concerns over the potential increase in the cost of living.

For comprehensive insights or assistance navigating the dynamic landscape of SST changes in Malaysia, feel free to reach out to us. We are here to provide the information and support your business needs for a seamless transition. Your success is our priority, and we stand ready to assist you through these changes. Contact us for personalized service and expertise tailored to your business requirements.

Nov 14, 2023 | Tax

10-Minute read
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For more information on the latest SST changes set out by the Malaysian Customs, please click here.

Fun Fact: A quirky aspect of Malaysia’s Sales and Service Tax (SST) is its influence on the pricing of chocolate bars. In a uniquely Malaysian twist, the SST exempts basic food items from taxation, and this includes chocolate. As a result, chocolate bars are often competitively priced compared to other snacks that may be subject to the tax. So, indulging in a sweet treat like a chocolate bar in Malaysia not only satisfies your sweet tooth but also provides a tax-friendly snack option!

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​For more information on the latest SST changes set out by the Malaysian Customs, please click here.

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