The reintroduction of the sales tax between 5% and 10% on selected manufactured and imported products and 6% services tax on selected services have raised the question of whether the move will raise prices. Under the GST, all products and services are subject to 6% tax.

To recap, the 6% GST drew strong criticism with public opinion citing it has caused overall prices to rise, thus hurting the people’s living cost. Businesses faced difficulties as reimbursement can be declined with a RM500k minimum requirement in annual sales before they can make a claim. Also, middle men were taking advantage by raising prices.

We believe the outcome from the SST would be mixed as it depends on the combination of the SST being slapped on the goods and services. Thus, different products and services will be affected differently, suggesting households may pay marginally higher for some products and services or the same for some items.

Thus, on the whole, there are possibilities for the overall tax burden to be lower, compared to the GST days. Assuming the SST coverage does not impact the goods and services of the lower and middle-income group, their disposable income will improve, which in turn will lift their spending power.

• The reintroduction of the Sales and Services Tax (SST) will see the sales tax of between 5% and 10% on selected manufactured and imported products and not across all the products as practised in GSTR. Besides, the 6% services tax will be imposed on selected services, compared to all services under the GST.

• To recap, the 6% GST drew strong criticism with public opinion citing it has caused prices of goods and services to rise, thus hurting the living cost of the people. Businesses were dissatisfied with difficulties in the reimbursement that can be declined and a minimum requirement of RM500k in annual sales before they can make a claim. And the middle men were taking advantage of the GST by raising prices and used the tax as a tool to make a profit.

• The question is whether prices will rise? We used a simple example to illustrate a basic comparison between the SST and GST in Table 1. We believe the outcome could be mixed simply because it depends on the combination of both the sales tax and the service tax. The sales tax is slapped on the manufacturing cost or import cost while the service tax covers a range of services. Also, it depends on the types of goods and services that will be subject to the SST.

• Hence, different products and services will be affected differently. That means prices will vary based on the impact, suggesting households may pay marginally higher for some products and services or the same for some items.

• On that note, there possibilities for the overall tax burden to be lower cannot be ruled out. It will depend on the coverage of the SST. Assuming the coverage does not impact the goods and services of the lower and middle income group, their disposable income will improve, which in turn will lift their spending power.

Source: AmInvest Research - 18 Jul 2018