Difference between GST and SST
Our tax free holiday is coming to an end when SST is expected to be re-introduced effective of 1st September 2018.
When Pakatan Harapan formed Malaysia’s Federal Government after the shocking GE 14 results, they walked one of their 100 days promises which is to abolish GST (Goods and Services Tax) at 6% and replacing it back it with Service and Sales Tax. Now, GST is set at 0% which, but that period is ending soon (sobs).
But what exactly made GST such an unpopular move when it was implemented by the previous Federal government and how SST is any different from GST?
When GST was introduced, it served as two purposes:
- As a panacea of economic downturn, as prescribed by the World Bank and IMF, and
- To reduce tax evasion cases and income generator as GST covers wide area of consumption.
But GST also had been blamed as the main reason of inflation and price hikes.
SST and How Young Professional Will Be Affected
Now SST is going to be introduced, how will affect the younger generation and how can we cope up with the tax rates?
Let see how this will influence our lifestyle in 3 basic aspects: general cost of living, transportation and property price.
Cost of Living
According to SM Thanneermalai, chairman of the board of trustees at the Malaysian Tax Research Foundation, reintroduction of SST is expected to lower the cost of living but savings are forecasted to be marginal.
Why are savings expected to be marginal to the general prices of living?
This is because of government’s goal to amount RM30 billion of tax collection compared to RM17 billion of the last round of SST.
This means more goods and services will be included in SST by widening its scope.
SM Thanneermalai also said that although SST is levied on fewer items compared to GST, eventually there will be some price of items that will be projected if they are to the subject of 10% of Sales Tax.
But all in all, the cost of living depends on factors such as a consumer’s income level and their location and it is subjective as it means different things for different people.
So, what young professionals and young adults like you and me, what we can do is to plan carefully of our spending by taking account the three basic things: cost of food, transportation and communication.
Some of us might be thinking of buying a new car, right?
Previously, 6% GST was imposed on both new and used cars, but now 10 Sales Tax will be charged. The Malaysian Automotive Association (MAA) revised their projection for the total of the industry volume which has reduced to 585,000 from 590,000 units.
This is because now, consumers have to pay 4% more. But in practice, prices could go up more than only 4% and this price hike could be attributed to the “profit-maximising” behaviour of business.
During this tax free holiday and doubled with Hari Raya promotion, there was a surge of demand for new cars, and car manufacturers could not fulfil the demand and there is a bottleneck in loan applications as banks are unable to process the loans on time.
And currently, the waiting lists for new cars ranging between two and three months.
According to Real Estate and Housing Developers’ Association (Rehda), SST exemption for major building materials and construction services might not have any significant effect on the prices of properties.
Although it is not significant, but the total of owning a house is predicted to still be reduced when the tax is absorbed by the developers.
House rental rates also expected to show downturn as of after SST reintroduction, tenants are no longer required to pay 6% taxation rate.
We have looked what is the expected trend after the introduction of SST, and now how can we have better financial skills for our own good.
First, we should know, what is the differences between the spending habits of poor, middle-income and rich people. After that we can assess ourselves in which group do we belong to.
Second, if you are only working and receiving paychecks at the end of the month, then you should start building your wealth! Life is too short to be confined in an office!