THE government plans to enlist only bigger companies with annual sales of at least RM500,000 in the Sales and Services Tax (SST) registrar compared to the previous annual turnover threshold of RM100,000.

Finance Minister Lim Guan Eng said the higher annual turnover threshold of RM500,000 will also cover manufacturers that carry out sub-manufacturing activities, a significant increase from the category’s previous RM20,000 threshold.

“This is to enable small-sized manufacturers to operate without having to pay this tax,” he said at the tabling of the Sales Tax Bill 2018 for the second reading in the Dewan Rakyat yesterday.

Upon the implementation of the sales threshold, Lim said the government expects 27,456 manufacturers to be registered under SST compared to 32,725 under the Goods and Services Tax (GST).

“Most manufacturers will also fall out of the scope of the sales tax, which will eventually reduce the cost of tax compliance and administration for small-sized manufacturers,” he added.

The minister also said tax-free input facilities will continue to be extended to manufacturers, such as the implementation of SST through tax exemption.

“Tax exemption will be granted on purchases of raw materials, components, packaging materials and manufacturing aids through imports or from registered manufacturers,” he added.

According to the Ministry of Finance (MoF), in ensuring that manufacturers can charge sales tax on the effective date, the manufacturers that are already GST registrants will automatically be listed by the DG of Royal Malaysia Customs Department.

Lim said SST’s implementation will keep its older model with certain changes that would benefit Malaysians in general.

“Based on research by the MoF and the feedback submitted by appointed professional tax consultants, some improvements to the existing model and scope of application need to be made.

“This is to facilitate tax administration, reduce the cost of having a business and minimise weaknesses in the tax system as a whole, while reducing the cost of living of the people,” Lim said.

He said the implementation of SST will also increase consumer s’ purchasing power as the quantity of goods and services taxed under the regime will be significantly lower than those under GST.

“SST accounts for only 38% of the basket of goods and services of the Consumer Price Index (CPI). It is much lower than the total CPI of goods and services imposed under GST, which is 60%.”

On the CPI subcomponents for the supply of housing, water, electricity, gas and fuel, he said only 28% of goods and services will be taxed under SST, compared to 59% under GST.

If SST is not approved, Lim believes the government will lose RM4 billion from what is expected to be collected, and the current balance would face a deficit.

“A current balance deficit means that the federal government ’s revenue is insufficient to cover management costs, and this will affect the credibility of the Malaysian economy in the eyes of the world, including credit rating agencies,” he said.

The federal government is also expecting a reduced tax collection by RM17 billion after the abolition of GST.

“This reduction in tax collection means the tax burden on people will be reduced, in other words, the government will repay RM17 billion to the people again and on a regular basis directly to the welfare of Malaysians,” he added.

SST will be reintroduced on Sept 1 following a threemonth tax holiday, which is a result of the zero-rated GST from June 1.

The rates of SST are set at 10% for sales and 6% for services, the same rate charged prior to the introduction of GST on April 1, 2015.