GST Features In SST Can Ease Tax Cascading, Cost Pressures - FMM

KUALA LUMPUR, Aug 19 (Bernama) -- Incorporating selected Goods and Services Tax (GST) features into the existing Sales and Service Tax (SST) framework can help address tax cascading and cost pressures, the Federation of Malaysian Manufacturing (FMM) said.

FMM president Jacob Lee Chor Kok said a properly designed credit mechanism would address the issue at source by allowing eligible taxes paid on business inputs to be recovered, rather than relying on repeated exemptions and corrective measures after implementation.

"This is why FMM sees merit in the government's proposal to incorporate the good features of GST into SST, particularly the input tax credit mechanism," he said in a statement.

FMM proposed that the government introduce a systematic input tax credit or offset mechanism for eligible sales and service taxes incurred on business inputs, including materials, machinery, logistics, factory rental, construction and other qualifying business services, to prevent such taxes from becoming permanent production costs.

It also proposed replacing multiple category-specific exemptions and reliefs with a more systematic credit or rebate mechanism to reduce tax-on-tax effects across supply chains.

The federation called for a reliable, automatic and time-bound refund mechanism, with clear timelines and prompt refunds of verified excess credits, particularly for exporters and capital-intensive manufacturers.

It further proposed insulating essential goods from embedded taxes through GST-style zero-rating or an equivalent credit, rebate or refund mechanism.

Eligible sales and service taxes incurred in producing and delivering exported goods should also be creditable, rebated or refunded to ensure export tax neutrality, it said.

FMM said e-Invoice infrastructure should be used to support verification, transaction visibility and fraud controls, making the credit and refund mechanism more efficient.

It also called for the federation and affected industry bodies to be involved from the outset in the government's study, design, implementation and transition stages to ensure the framework works effectively across sectors.

"FMM recognises the government's intention to retain SST as the base system at this stage.

"If this approach is maintained, the priority should be to incorporate the GST features that prevent taxes on business inputs from accumulating through the supply chain, particularly input tax credits, effective treatment of essential goods and exports, and a dependable refund mechanism," Lee said.

On Aug 18, Prime Minister Datuk Seri Anwar Ibrahim said the government was open to studying the incorporation of selected GST features into the existing SST framework.

Anwar, who is also the Finance Minister, said SST would remain the foundation of the national tax system and that the government did not intend to impose a broad-based tax on the people at this stage.

-- BERNAMA