Survey finds most Malaysian manufacturers favour GST, saying SST’s cascading taxes raise costs and erode competitiveness

The Federation of Malaysian Manufacturers (FMM) has released a new survey indicating that the majority of local manufacturers favor the return to a Goods and Services Tax (GST) system over the current Sales and Service Tax (SST). The survey, conducted by FMM, found that 61% of respondents support the reintroduction of GST, citing the tax cascading issue as the primary reason.

Tax cascading occurs when unrecoverable taxes on raw materials and business inputs are embedded in final production costs, negatively impacting competitiveness. The survey revealed that production costs increased by 60% due to embedded taxes in the supply chain, and 59% of manufacturers faced unrecoverable taxes on business inputs.

FMM President Jacob Lee emphasized that the concerns extend beyond the tax burden, highlighting the predictability and administrative complexity of the existing system. Compliance and administrative burdens were noted by 45% of respondents, while 42% expressed increased uncertainty due to frequent tax scope changes, exemptions, and interpretations.

The GST's input tax credit mechanism was deemed crucial by 65% of manufacturers, as it allows them to recover input costs that are often unrecoverable under the current SST system. Additionally, 52% of manufacturers found the GST to be more transparent than the current system. In terms of the GST rate, 68% of respondents favored a rate of five percent or below, with 41% preferring a three percent rate.

Only two percent of manufacturers would be comfortable with a rate exceeding six percent, while 20% remained uncertain. Lee suggested that adopting a systematic input tax credit mechanism would prove more effective than relying on the fragmented approach of category-specific exemptions and reliefs.