FMM backs integrating GST features in SST to curb cascading taxes

PETALING JAYA: The Federation of Malaysian Manufacturing (FMM) has welcomed the Malaysian government's interest in exploring the inclusion of certain Goods and Services Tax (GST) elements within the Sales and Service Tax (SST) scheme. FMM's president, Jacob Lee, proposed this move to address cascading taxes, a problem he said is inherent to SST.

Cascading taxes occur when tax is levied at each stage of a product's supply chain, leading to embedded costs throughout the chain. Lee highlighted that taxes paid on business inputs often cannot be recovered, thus becoming embedded in production and distribution costs. The FMM's president noted that this issue has become more pressing after the SST's expansion in March 2024, which increased service tax from 6% to 8% for most services, while leaving logistics at 6%.

Lee suggested the government consider integrating GST features into SST, proposing a GST-style input tax credit system for eligible upstream taxes on essential goods and exports. He also supported an automatic and time-bound refund mechanism, powered by Malaysia’s e-Invoice system. While FMM sees GST as its preferred long-term tax framework, Lee called for immediate industry engagement if SST were to remain the base system.