Sales tax had been in effect in Malaysia since 1972 and Service Tax was implemented in 1975. Both these taxes as the name implies were targeted at different industries. Sales tax applied to goods imported or manufactured locally. Coverage however was not on all manufacturing activities unless prescribed in the Schedule. Service tax applied to services provided locally by local businesses.
There were inherent weaknesses in the implementation and enforcement of Sales tax legislation. Activities had to be considered as manufacturing as defined in the Act. It did not apply to the manufacturing of all kinds of goods and even when goods were included, their final use precluded taxation. It applied on the sale value at manufacturing level which means marketing and trading activities and entities were excluded.
Service tax applied to services defined as prescribed services and listed in the Schedule to be liable.
Rates too were different. In the case of Sales tax the rates had been revised several times but basically were at 5%, 10% or in very limited case 25%. Service tax was standard at 5% until revised effective 1.1. 2011 to 6%.
Goods and Services Tax or GST which replaced both Sales and Service Tax has helped simplify indirect taxation by a single taxation and single law as well as overcome issues of tax shifting and avoidance. Instead of Customs spending time examining to see if transactions had bypassed taxation through proxy businesses or being underpriced at manufacturer's levels or whether business activities were considered as 'manufacturing' or Services were as prescribed, GST is all inclusive and self policing.
GST Act 2014 Act 762 came into force effective 1 April 2015 by Gazette No P.U.(B) 320
Sales tax had been in effect in Malaysia since 1972 and Service Tax was implemented in 1975. Both these taxes as the name implies were targeted at different industries. Sales tax applied to goods imported or manufactured locally. Coverage however was not on all manufacturing activities unless prescribed in the Schedule. Service tax applied to services provided locally by local businesses.
There were inherent weaknesses in the implementation and enforcement of Sales tax legislation. Activities had to be considered as manufacturing as defined in the Act. It did not apply to the manufacturing of all kinds of goods and even when goods were included, their final use precluded taxation. It applied on the sale value at manufacturing level which means marketing and trading activities and entities were excluded.
Service tax applied to services defined as prescribed services and listed in the Schedule to be liable.
Rates too were different. In the case of Sales tax the rates had been revised several times but basically were at 5%, 10% or in very limited case 25%. Service tax was standard at 5% until revised effective 1.1. 2011 to 6%.
Goods and Services Tax or GST which replaced both Sales and Service Tax has helped simplify indirect taxation by a single taxation and single law as well as overcome issues of tax shifting and avoidance. Instead of Customs spending time examining to see if transactions had bypassed taxation through proxy businesses or being underpriced at manufacturer's levels or whether business activities were considered as 'manufacturing' or Services were as prescribed, GST is all inclusive and self policing.
GST Act 2014 Act 762 came into force effective 1 April 2015 by Gazette No P.U.(B) 320
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