Sst More Equitable Than Gst Says Finance Ministry

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INTERVIEW | The government’s decision to expand the sales and service tax (SST) instead of reintroducing the goods and services tax (GST) aims to create a more progressive tax system.
The Finance Ministry said this is meant to protect ordinary citizens while ensuring that higher earners pay their fair share.
In an exclusive interview with Malaysiakini, its Treasury secretary-general Johan Mahmood Merican said the expanded SST framework, which targets specific luxury items and premium services, represents a targeted progressive approach that contrasts sharply with GST's broad-based methodology.
Johan said a key distinction between SST and GST lies in who ultimately bears the tax burden.
Under GST's structure, he said businesses can claim input tax credits and pass costs to consumers.
"The beauty of GST from a business point of view is that businesses actually end up paying no taxes. It is all borne by the final consumer, and that's you and me," he added.
The SST expansion, by contrast, places greater emphasis on business-to-business services.
"The direct incidence of tax is at the company level," he said, particularly targeting services such as rental of industrial properties, construction of commercial buildings, and corporate financial services.
Johan explained that many SST services introduced are tiered more towards the commercial sector and more to businesses than to consumers.
He said that while the government could have generated more than double the revenue from GST than SST, it did not want to place an undue burden on taxpayers.
Positive list approach
Johan elaborated that the government took a positive list approach to the SST, choosing to apply it to sectors like construction, rentals, and finance while excluding many others.
“I think that is because the government wanted to have this more targeted approach,” said Johan, adding that many basic goods are still not taxed under SST, and even for construction or rentals, “we exclude things like housing.”
He said applying this under the GST would have been “very messy.”
"Whilst a clear advantage of GST is seen as very comprehensive tax, but the way that the GST is structured, is that, if let's say I am business A, I have paid for some goods with GST, I can actually claim that back as input tax and then I charge it on to my customer.
“If my customer is company B, I can also claim back the GST I charged them and then charge it onto my customer, who then happens to be you," Johan said, pointing out that this is how businesses end up paying no taxes.
He assured that the SST expansion has its benefits, as it is a system already known by the business community, and it is faster to implement and "probably easier to understand,” he added.
On June 1, 2018, the newly elected Pakatan Harapan government abolished GST to fulfil its election pledge and reinstated SST.
The decision proceeded despite economists warning that the move was regressive and potentially damaging to government revenues.
GST was favoured for its ability to eliminate compounding and cascading taxes, thereby reducing production costs for businesses.
Over 100 countries have adopted GST or VAT systems, with the World Bank and International Monetary Fund regularly recommending such frameworks to address government revenue shortfalls.
Johan said the government sought to pursue a targeted progressive approach by focusing on those with greater capacity to bear higher taxes.
Consequently, many newly introduced SST services target the commercial sector.
"Of course, you might say they may pass on those costs, but the direct incidence of tax is at the company level. As I had mentioned, this SST extension is more tiered towards businesses," he added.
Leakages? E-invoice is there
When questioned about SST's efficacy in plugging financial leakages, Johan said the e-invoice system can effectively address this concern.
"E-invoicing helps us capture or register all the companies providing sales and services, for us to ensure that in terms of the tax net, we can keep track of companies offering sales and services, and also on the flip side, because we have records of who they sell to," he said.
He added that e-invoice is a supplementary mechanism that can address leakages.
"In terms of addressing leakages, e-invoicing is certainly the mechanism that we feel would help us.
“I wouldn't say better (than GST), but certainly it is a method that enables us to get very good and comprehensive data of economic transactions, rather than gaps in the taxation," Johan explained.
The Inland Revenue Board (IRB) postponed the e-invoice implementation for mid-tier taxpayers, announcing on June 5 that businesses with annual turnover between RM1 million and RM5 million will begin compliance from Jan 1, 2026.
The tax authority also confirmed that smaller taxpayers with annual income or sales below RM500,000 remain entirely exempt from the e-invoice system.
"The implementation phase for taxpayers with annual income or sales up to RM1 million has been postponed to July 1, 2026," Bernama reported the IRB saying.
The deferral follows government recognition of the significant challenges facing taxpayers, particularly micro, small, and medium enterprises, in meeting e-invoice legal requirements.
Officials acknowledged these businesses require substantial preparation time, given the complex implementation hurdles they encounter. - Mkini

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