SST for Beginners: Understanding Malaysia’s Sales & Services Tax

Since the reintroduction of Malaysia’s Sales and Services Tax (SST) on 1 September 2018, it has become an important part of the country’s indirect tax system, replacing the previously implemented Goods and Services Tax (GST). Though it has been around for some years now, SST can still be confusing for a number of business owners and accounting professionals — particularly those who are not familiar with Malaysia’s tax system. This beginner’s guide provides a straightforward explanation of SST’s main ideas, mechanics, elements, and their practical implications.

What is SST? A Simple Definition

Essentially, SST (Sales and Services Tax) is an indirect consumption tax imposed on taxable goods at the point of importation or manufacture by a licensed manufacturer, and on prescribed services provided in Malaysia. Unlike GST, which was a multi-stage value-added tax, SST is a single-stage consumption tax imposed at a specific point in the supply chain, depending on the nature of the transaction.

An “indirect tax” refers to the fact that although businesses are collecting SST from customers, the economic incidence of the tax falls on the end consumer. SST-registered companies will have to charge, collect, and pass the tax to the government through the Royal Malaysian Customs Department.

SST vs GST: What Changed?

Before the reintroduction of SST, Malaysia implemented a broad-based Goods and Services Tax (GST) at a rate of 6%. Under the current SST regime, the Service Tax rate was increased from 6% to 8% effective 1 March 2024 for most prescribed services, while Sales Tax rates remain unchanged. With the transition to SST:

• The scope of taxed transactions was reduced.
• Tax is imposed only at specific points, namely during the manufacture or importation of goods, or the provision of prescribed services.
• The system is more focused and follows a straightforward structure, unlike the wide-ranging value-added system under GST.

Understanding this transition is crucial given that many compliance and business process requirements changed substantially with the repeal of GST and commencement of SST.

Two Pillars of SST: Sales Tax and Service Tax 

SST consists of 2 different components: Sales Tax and Service Tax. Each has its own laws, rates, and taxable categories.

1. Sales Tax

It is charged on taxable goods (listed under Malaysian law) that are manufactured or imported into Malaysia. Key features include:

• A once-only, single-stage tax – often imposed at the factory or import stage.
• The tax is to be charged and accounted for by registered manufacturers or importers.
• Sales Tax rates are prescribed by law at either 5% or 10%, depending on the product category, while services are subject to Service Tax under separate legislation.

Certain non-essential or specifically listed goods, as prescribed under the Sales Tax legislation, are subject to Sales Tax. However, regulations may exempt many everyday necessities.

2. Service Tax

Service Tax is chargeable on prescribed services offered in Malaysia by registered persons. Service Tax is different from Sales Tax in that it taxes the provision of services rather than goods. Some distinguishing points:

• The standard Service Tax rate is 8% for most services, although some categories like food & beverage, parking, logistics, and telecommunications still remain at 6%.
• Originally, it was restricted to services like telecommunications, hotels, restaurants, and professional services. However, following recent expansions, Service Tax now applies to selected services within sectors such as leasing and rental, construction, financial services, private healthcare, education, and beauty and wellness services, subject to prescribed scope, conditions, and exemptions.

Who Should Register for SST?

SST registration is not mandatory for all businesses. The obligation to register for tax applies to bodies that:

• Manufacture or import goods on which it is obligatory to pay Sales Tax, or
• Provide prescribed taxable services and exceed the applicable registration threshold, which varies depending on the type of service.

Once an enterprise exceeds these thresholds, compulsory registration activates the SST obligation to collect, remit, and charge tax on invoices issued for services provided, filing periodic returns, and keeping extensive tax records. Compliance is also vital for businesses to ensure that they do not pay penalties and that their good standing with customs in Malaysia is not affected.

Exemptions, Thresholds, and Special Rules

Although the SST goes beyond standard goods and services, there are also exceptions:

• Some basic goods may be excluded from Sales Tax to minimize the impact on consumers.
• Some services may be exempted from Service-Tax based on industry or regulatory standards. 
• There may be special provisions for free trade areas or special economic zones.

It is critical to understand these nuances for accurate tax planning and compliance. Sales Tax Exemption Orders and related Customs policies are frequently referred to by tax professionals to determine eligible exemptions.

The Role of SST in the World of Business and Government Finance

SST plays an important role in Malaysia’s tax system by:

• Generating consumption tax revenue.
• Providing a structured framework for taxing selected goods and services within Malaysia’s indirect tax system.
• Keeping the structure of indirect taxation.

For businesses, SST affects pricing calculations, accounting tools as well as customer invoicing. However, from the perspective of consumers, the cost of SST is ultimately borne in the price of taxable goods and services, although Service Tax is often shown separately on invoices while Sales Tax may be embedded in product pricing. Hence, having knowledge of its application should be valuable for budgeting and cost perception.

Master SST with Confidence

Understanding SST is important to remain compliant and to avoid costly mistakes. OTC Training Centre provides an “Understanding Malaysia Sales and Services Tax (SST)” course, which provides practical, real-world SST knowledge.

The course is suitable for business owners and finance professionals because it:

• Provides clear SST fundamentals
• Has a practical compliance guide
• Led by experienced trainers

Register now and strengthen your SST expertise:
https://otc.com.my/main-course/understanding-malaysia-sales-and-services-tax-sst/