Malaysian Manufacturers Urge Input Tax Credits in SST System

Malaysian manufacturers are calling for the government to integrate input tax credit mechanisms into the current Sales and Service Tax (SST) system, drawing parallels with the former Goods and Services Tax (GST). The Federation of Malaysian Manufacturers (FMM) believes this change is crucial to mitigate the impact of cascading taxes and alleviate cost pressures across the supply chain.

Jacob Lee Chor Kok, President of FMM, highlighted that a key weakness of the current SST structure is the inability to claim back taxes paid on business inputs. This effectively makes those taxes a part of the production cost, which is then passed on to subsequent stages of the supply chain.

"FMM sees merit in the government's proposal to incorporate good features of GST into SST, particularly the input tax credit mechanism," Lee stated. He explained that a well-designed credit system could address the issue at its root by allowing eligible taxes paid on business inputs to be reclaimed.

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FMM sees merit in the government's proposal to incorporate good features of GST into SST, particularly the input tax credit mechanism.

Prime Minister Anwar Ibrahim recently indicated the government's willingness to study the integration of GST and SST features to improve the national taxation system, while maintaining SST as the core. FMM proposes that sales and service taxes on business inputs be allowed as credits or offset against tax liabilities. This would cover eligible materials, machinery, logistics, factory rentals, production facility construction, financing, and other business services.

Dr. Mohammad Mujaheed Hassan, a Senior Lecturer at Universiti Putra Malaysia, emphasized the need for any new tax system to be efficient, transparent, and capable of generating sustainable revenue without burdening citizens. He noted that adapting GST's strengths, such as reducing double taxation and enhancing transparency, could significantly improve the SST framework. He also stressed the importance of fairness, simplicity, transparency, protection for basic goods and services, simplified compliance for SMEs, clear communication about changes, and a reasonable transition period for businesses.

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If GST features such as the mechanism for reducing double taxation, increasing transaction transparency, and strengthening compliance can be adapted within the SST framework, it has the potential to be an improvement.