VAT To SST Changes In Malaysia Guide For Accountants & Bookkeepers

As an accountant or bookkeeper, you know that behind every tax form is a story of a business just striving to stay ahead. It’s not always easy for business owners to stay up to date, and it's up to you as an accountant or bookkeeper to guide your clients.

The shift from VAT (known as GST in Malaysia) to SST in Malaysia and the recent changes to SST are more than policy updates. They’re new aspects of bookkeeping and taxes you need to manage to ensure compliance for your clients and support their growth. 

Navigating this change is about helping business owners feel secure in their financial management. We’ve designed this guide to help you make sense of the VAT to SST transition. 

What is SST, and how does it differ from VAT?

SST (Sales and Service Tax) replaced GST (Goods and Services Tax, Malaysia's version of VAT) in 2018. SST is a single-stage tax system, applied only at the point of manufacturing or service provision, while GST/VAT is multi-stage, applied at each stage of the supply chain.

Here's what you need to know about SST:

• Sales tax: Applied to taxable goods manufactured in or imported into Malaysia.
• Service tax: Charged on specific taxable services provided within Malaysia.

While GST’s multi-stage nature was designed to be comprehensive, SST’s approach aims to simplify compliance, especially for smaller businesses that often feel the weight of complex reporting. Yet simplicity comes with its own challenges. Understanding these nuances is crucial to guiding your clients effectively, especially as the service tax rate increased to 8% in March 2024.

So, to recap, what is VAT tax, and what are the differences between it and SST?

• Multi-stage vs. Single-stage: VAT?GST is a multi-stage tax applied at each stage of the supply chain, while SST is a single-stage tax applied only at the manufacturer or service provider level.
• Simplicity: SST is often seen as simpler for small businesses, with fewer compliance requirements compared to VAT.
• Rates: Sales tax rates range between 5% and 10%, while the service tax rate has recently increased from 6% to 8% (effective March 1, 2024).

What is a VAT number in Malaysia?

A VAT number is a unique identifier used for businesses registered under VAT systems. Although Malaysia transitioned to SST, businesses with taxable sales exceeding RM500,000 annually must register for an SST number.

The transition from GST did not automatically convert VAT numbers into SST registrations. Businesses need to register separately for SST through the MySST portal, managed by the Royal Malaysian Customs Department. Understanding this distinction helps ensure accurate compliance for your clients.

Overview of VAT in Malaysia

Before SST, Malaysia’s GST operated like VAT systems in other countries, taxing each stage of the supply chain. Introduced in April 2015, GST applied a 6% rate and allowed businesses to claim input tax credits, making it comprehensive but complex.

However, by 2018, the Malaysian government had decided to abolish GST due to the financial strain it placed on consumers and the desire for a simpler system. SST was introduced on September 1, 2018, as a replacement. 

While GST required intricate record-keeping across multiple stages, SST offers a more streamlined approach, which has been beneficial for small businesses but poses new challenges in terms of adaptation and understanding.

Key changes accountants need to know about SST

The recent shift to an 8% service tax rate (effective March 1, 2024) means adjustments in pricing, invoicing, and tax calculations for businesses. Essential services like food, telecommunications, and logistics remain taxed at the previous 6% rate, requiring accuracy in applying the correct rates.

Businesses with over RM500,000 in annual taxable sales must register for SST through the MySST portal. The centralised system simplifies registration but requires precise record-keeping to avoid penalties. Accountants play a vital role in ensuring compliance and helping clients understand their obligations.

Here’s a more detailed breakdown of SST:

Why was VAT replaced with SST in Malaysia?

The shift from VAT/GST to SST was not just about changing a tax system—it was about rethinking Malaysia’s approach to taxation. The Malaysian government aimed to alleviate the financial burden on consumers, especially in the wake of criticism that GST had led to increased living costs. SST was seen as a way to simplify compliance for businesses while reducing the tax load on everyday transactions.

For accountants and bookkeepers, understanding this historical context is essential. It allows you to explain the rationale behind these changes to clients who may be wondering why Malaysia moved away from a more globally common system like VAT.

Impact of SST changes on small businesses and multinationals

The transition from VAT to SST, along with the recent changes, affects different types of businesses in various ways. 

For small businesses, SST's single-stage nature can make compliance more straightforward. There’s less need for detailed input tax tracking, which means less time spent on paperwork. However, the inability to reclaim input taxes means that small businesses must carefully manage their expenses, as the cost of goods can become a larger burden.

Multinationals, on the other hand, face a different set of challenges. Many of these companies operate with complex supply chains and are used to the input tax credits system under VAT. Adapting to SST means adjusting pricing strategies and internal processes to account for the lack of these credits.

Benefits and drawbacks of the SST system

Like any tax system, SST has pros and cons, and understanding both sides can help you provide balanced guidance to your clients.

One of the primary benefits of SST is its reduced administrative burden. With fewer stages involved in tax calculation and reporting, businesses—especially smaller ones—often find the system more manageable compared to VAT. The simplified structure means that accountants can focus more on strategic financial advice rather than getting bogged down by intricate filing requirements.

However, the drawbacks are also notable. 

The lack of input tax credits means that businesses cannot offset the taxes they pay on supplies, which can lead to higher costs. This is particularly challenging for industries with thin margins, where every expense counts. 

Additionally, with the recent increase in the service tax rate to 8%, some businesses may find it necessary to adjust their pricing, potentially passing the increased cost on to their customers. This can create a delicate balancing act for businesses looking for profitability while remaining competitive. 

How to adjust accounting practices for the SST system

Here’s how accountants and bookkeepers can adjust their practices to align with the latest changes:

• Update your software: Using tools like QuickBooks can help automate the calculation of the new 8% service tax rate, reducing the risk of errors. Ensure that your clients' accounting software is updated to reflect these changes, allowing for smooth transitions in invoicing and compliance.
• Review pricing strategies: With the increase in service tax rates, businesses might need to adjust their pricing to account for the additional costs. Work with your clients to review their pricing models, ensuring that they remain competitive while covering their tax obligations.
• Focus on accurate record-keeping: SST filings are due every 2 months, making it essential to maintain detailed records of taxable sales and services. Accurate records ensure that clients meet deadlines and avoid penalties. It also provides a solid foundation for any audits or reviews by tax authorities.
• Educate your clients: Many business owners may not fully understand the implications of the tax rate changes. Take the time to educate them about how these updates affect their financial management, reinforcing the value you bring as their advisor.

Staying compliant in a changing tax environment

By staying informed about changes like the shift from VAT to SST and the recent rate adjustments, you can ensure that your clients remain compliant. 

Tools like QuickBooks can simplify this process, allowing you to focus on what you do best—providing strategic financial guidance that helps businesses thrive.

Explore QuickBooks tools today and see how getting certified can help you offer a fantastic service to your clients in Malaysia.