IDEAS thinks govt should set new SST at standard rate of 5%

PETALING JAYA: The Institute for Democracy and Economic Affairs (IDEAS) has recommended a new reformed Sales and Services Tax (RSST) with a standard rate of 5%.
"We recommend that rather than simply bring back the original SST, the government should introduce a new Reformed SST (RSST)," IDEAS CEO Ali Salman and researcher Adli Amirullah said in a report released today.
IDEAS said a standard rate for both sales tax and service tax elements could reduce complexity and variability in prices.
"The government will need to consider carefully how to set the rate. Even if the rate for RSST is set at 6% or higher, the amount is likely to be lower than under GST (Goods and Services Tax), as the tax is only applied at the initial stage. We propose an initial rate of 5%."
The SST will be implemented from September to replace the GST, which has been zero-rated since June 1.
With a single-stage tax, IDEAS said, businesses will not be required to file for any refunds and their payment to the treasury will be considered final liability.
"This will also increase the working capital, which is critical to healthy functioning of all firms, particularly SMEs, which are often run on private equity."
Under the previous SST regime, businesses were required to charge sales tax if their annual sales turnover exceeded RM100,000. When GST was introduced, the threshold increased to a minimum of RM500,000 of taxable return per annum or higher.
For the RSST, IDEAS recommended to maintain the minimum threshold of taxable return of RM500,000 to ease the burden on small businesses and maximise the marginal benefit.
"The government should also maintain the current practice from the GST regime of exempting the export of goods and services from the RSST, to encourage development of Malaysia's export sectors."
It noted that the new SST should be business friendly by having standardised and simplified administration procedures and incorporating GST best practices.
"For instance, the modes of payment for SST should remain online, and the web-page needs to be user friendly with explicit instructions. In addition, the time that businesses take to pay the tax needs to be revised. The government should ensure that businesses are encouraged to pay taxes promptly, with appropriate measures and incentives."
IDEAS also suggested that the government could require service providers to deduct the sales tax paid from the value of the bill before calculating the service tax, to avoid paying a higher effective tax rate.
"This could occur when a consumer purchases a taxable good as part of a taxable service, such as buying a soft drink in a hotel bar."
IDEAS said while the government established a fund to compensate for the costs associated with the introduction of GST, a similar fund should be attached to the implementation of RSST.
"We recommend an allocation of RM100 million for all SMEs, to cover the cost of installing software and imparting necessary training."