Malaysia Considers Input Tax Credits to Boost SST System and Ease Costs

Malaysia is exploring a significant reform to its Sales and Service Tax (SST) system by considering the introduction of input tax credits. This move, proposed by Mohd. Sedek Jantan, Director of Investment Strategy and Chief National Economist at IPPFA Sdn Bhd, could make the tax system more targeted and alleviate cost pressures throughout the business chain.

The mechanism of input tax credits allows businesses to offset taxes paid on previous stages of production. For example, if producer A pays RM10 in tax and producer B pays RM13, producer B could deduct RM10 from their tax liability. This approach aims to improve the SST structure without necessitating a complete overhaul of the national taxation system.

Mohd. Sedek Jantan presented these ideas during a forum on "Asia's Difficult Choices: Managing Geo-economic and Geopolitical Risks" at the Asia Economic and Entrepreneurship Summit 2026. The forum also addressed issues like trade bloc fragmentation, energy and commodity shocks, and capital flow uncertainties impacting investment, business costs, supply chains, and economic growth.

This consideration follows Prime Minister Datuk Seri Anwar Ibrahim's statement regarding the government's willingness to study the integration of Goods and Services Tax (GST) and SST features to enhance the national tax system. While the core of the system would remain SST, the potential inclusion of GST elements like input tax credits signals a move towards a more refined and responsive tax framework. The goal is to ensure the tax system reflects Malaysia's economic realities, protects consumers, particularly the B40 group, and maintains business competitiveness.