adminKUALA LUMPUR, Aug 20 (Bernama) — An economist has backed the proposal for a hybrid sales and service tax (SST) system, saying the mechanism should incorporate input tax credits to reduce tax cascading.
IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said the SST is too narrow to generate sufficient revenue and prevent tax cascading, while the goods and services tax (GST) is too broad, making a hybrid or reformed SST a better fit.
“One element I hope to see in a hybrid SST is an input tax credit,” he told Bernama.
He explained that an input tax credit can help ease price pressures at the business level, although it does not necessarily lead to lower prices for goods.
“The mechanism works by reducing taxes that accumulate along the supply chain,” he said.
Citing an example, Mohd Sedek said if a manufacturer sells goods to a wholesaler for RM100 with RM10 in tax, the wholesaler would pay RM110.
If the wholesaler subsequently sells the goods for RM130 and collects RM13 in tax, an input tax credit system would allow the wholesaler to offset the RM10 tax already paid against the RM13 collected.
“The net tax that needs to be remitted by the wholesaler to the government is RM13 minus RM10, which is RM3.
“This is important because the tax does not continue to stick as a cost to the wholesaler,” he said.
Without an input tax credit mechanism, he said taxes imposed at an earlier stage could form part of the cost base used by businesses to determine prices at the next stage of the supply chain.
“This is when tax cascading occurs. Tax is imposed, it becomes part of the cost, prices are increased and tax is imposed again, causing prices to rise further,” he said.
Last Tuesday, Prime Minister Datuk Seri Anwar Ibrahim said the government is exploring ways to make Malaysia’s tax system more progressive, including incorporating selected GST elements into the existing SST framework.
— BERNAMA
