KUCHING: The government has been urged to consider reintroducing the Goods and Services Tax (GST) as industries, including timber, are grappling with rising costs and compliance burdens following the expansion of the sales and service tax (SST).
Sarawak Timber Association (STA) chief executive officer Annie Ting said the expansion, which coincided with the Phase 3 e-invoice rollout, has also left businesses scrambling to adapt to new compliance requirements on a tight deadline.
She said while consumers may receive temporary relief, businesses face a permanent increase in complexity and cost.
“The cascading tax effect inherent in the SST system remains, where taxes accumulate through the supply chain, ultimately raising the cost of doing business.
“For industries like timber, the reclassification of previously exempt goods such as sawntimber and plywood into the five or 10 per cent sales tax bracket presents a significant challenge,” she said in a statement today.
Ting said the situation is further complicated by the intricate sales tax exemption mechanisms for raw materials, which create compliance burdens for manufacturers producing both taxable and non-taxable goods.
“These industry-specific issues highlight a disconnect between broad fiscal policies and the granular realities of business operations,” she said.
She added that the expanded scope of sales tax has also inadvertently resulted in increased complexity and confusion regarding compliance matters.
“Under the current sales tax mechanism, exemption facilities are available for components and input raw materials used in the manufacturing of both taxable and exempted goods, subject to the fulfilment of pre-requisite conditions imposed by the government.
“This creates significant challenges for businesses involved in the production of both taxable and non-taxable products as it complicates the segregation and compliance process,” she said.
She said further engagement with the relevant authorities and consultation with professional tax advisers is urgently needed to clarify these issues and avoid potential penalties arising from incomplete understanding or misinterpretation of the rules.
Policymakers, she said, should therefore consider reintroducing GST with improved execution to balance revenue needs with ease of doing business and public welfare.
In comparing SST and GST, Ting said that GST is a broad-based, multi-stage consumption tax where businesses act as collectors, remitting only the net tax (output tax minus input tax) to the government.
“In contrast, SST is a narrow-based single stage tax imposed at manufacturing or import (sales tax) and selected services (service tax),” she said.
She added as businesses cannot claim input tax credits, taxes accumulate through the supply chain will increases cost of doing business.
“Its coverage is relatively limited, hence reducing revenue potential and creating distortions in the market.
“The many different exemption mechanisms and facilities, introduced to minimise tax impact to certain categories of people and market complicate tax compliance, thus increase audit risks and penalties,” she said.
She reiterated that businesses face higher cost and it will be passed on to business supply chain and eventually the end consumers, though few strategies are put in place to reduce cost impact to the SMEs, however they are likely challenged with higher cost of purchase of goods and services.
As for GST, she said most businesses already have GST-ready accounting systems and are also familiar with compliance procedures in the previous implementation from April 2015 to August 2018, hence a re-introduction of GST may not require a long preparation of 18 months like when it was first introduced.
“As previously experienced, GST brings in higher and stable revenue for the government which are crucial for economic stability and development funding,” she said.
To mitigate price increase which may be one-off and inflation, Ting said GST can be introduced at a low rate of three instead of six per cent, with targeted subsidies to B40 households such as direct cash aid can be dispatched to offset increase price effects while basic groceries and essential services such as education and healthcare service may be zero rated or exempted.
“While the SST expansion aims to boost government revenue, its structural flaws — cascading taxes, narrow coverage and compliance burdens — make it inferior to GST.
“The reintroduction of GST, with better public engagement, clear government support implementation and safeguards for low-income groups, would provide a more efficient, transparent and sustainable tax system,” she said.
