FMM urges input tax credits as government reviews GST features for SST

The Federation of Malaysian Manufacturers (FMM) has urged the Malaysian government to incorporate input tax credits into the Sales and Service Tax (SST) framework when reviewing the integration of certain Goods and Services Tax (GST) features. FMM president Jacob Lee Chor Kok emphasized that allowing businesses to claim credit for eligible sales and service taxes on inputs would help eliminate the cascading taxes effect and prevent taxation on business inputs from becoming an additional cost in the supply chain.

The FMM proposed that eligible costs, such as raw materials, machinery, logistics, transportation, factory rentals, construction of production facilities, financing, and other business services, be included as credits or offset against tax liabilities. Lee stressed the importance of a simple, transparent mechanism that does not raise compliance costs for businesses and maintains the competitiveness of Malaysian industries and exports.

The FMM also called for GST-style zero-rating, credits, rebates, or refunds for eligible upstream taxes directly linked to the production and distribution of essential goods, ensuring that tax-free status is maintained throughout the supply chain. The federation also advocated for tax neutrality in exports, allowing Malaysian goods shipped overseas to avoid accumulated domestic consumption taxes in production costs.

Lee suggested replacing multiple category-specific exemptions and reliefs with a systematic credit or rebate mechanism to reduce tax-on-tax effects and provide consistent tax treatment across various business models and supply chains. The FMM also requested a reliable and automated refund mechanism with clear timelines, enforceable refund deadlines, simple verification procedures, and risk-based audit controls.

Additionally, the federation proposed utilizing the e-Invoicing infrastructure to digitally verify business transactions, improve transparency, and strengthen fraud prevention measures. The FMM reiterated that GST remains its preferred indirect tax framework in the long term, while acknowledging the government's intention to retain SST as the primary taxation system temporarily.