AUGUST 26 — This article responds to the recent announcement made by the government that it is prepared to study whether certain features of the goods and services tax (GST) could be incorporated into the existing sales and service tax (SST). The government’s willingness to study the proposal is a useful starting point. As no hybrid model has yet been developed, it is too early to determine whether combining GST and SST elements would make Malaysia’s tax system more progressive and efficient.
The proposed study is a welcome step towards modernising Malaysia’s tax system in response to an increasingly digitalised economy. The study should extend beyond simply choosing between GST and SST. It should consider how consumption tax rules apply to trading conducted through digital platforms, gig economy, crypto asset transactions and new business models that may emerge.
Modernising the tax system does not require a hybrid model. The starting point should be an assessment of the existing SST framework to determine whether any limitations arise from the law, administration and its implementation.
Since SST was expanded in July 2025, the government should examine the available evidence on revenue, tax cascading, consumer prices, business compliance costs and the treatment of digital transactions. This would help to determine whether further reform is necessary, on which problems it should address and how its success should later be measured. Any limitations in the available evidence should be stated clearly to justify whether any GST elements could address them.
If unresolved problems remain, the study should explain what it means to add GST features to SST. A hybrid and untestable system might cause several administration, implementation and enforcement issues resulting in increased tax evasion, severe compliance burdens for businesses, market price distortions and to some extent decline in national economic prospect.
The meaning of a hybrid system must be clearly defined. Allowing businesses to deduct tax already paid would change how SST is calculated and would require rules for refunds. Digital reporting such as e-invoicing would mainly improve tax administration. Since these measures serve different purposes, the study should identify the problem that each measure is intended to solve and assess its legal, administrative and business implications.
Combining features of GST and SST will not by itself address these developments. The law must clearly state what is taxed, who must collect it, and how it is collected and paid to the government. If GST features such as input tax credits and refunds are incorporated into SST, passing a law will not enough. Customs must have trained officers, clear procedures, reliable data and computer systems to verify credit and refund claims and conduct audits. The law should also permit customs to obtain necessary information held by another public authority.
If the reform is also intended to make the tax system more progressive, household support must be considered separately. Income tax relief may not benefit lower income households that pay little or no income tax. Targeted financial assistance may be more effective. Where several agencies are involved, their roles and authority to exchange information must be clearly defined by law.
Malaysia’s own experience with GST reform from 2015 to 2018 provides the most direct starting point. The study should examine which parts of that system worked, which created difficulties and whether those difficulties arose from the GST design or implementation. The abolishment of GST does not establish that the failure of the system and any reintroduction must be justified and in accordance with the international standards.
The study should also include meaningful public consultation. The government should publish the problem identified, the options being considered and their expected effects on revenue, households and business costs. Consumer groups, small businesses, digital platforms, tax professionals and the officers who will administer the system should be consulted. Any change should be introduced only after the necessary system have been tested and businesses have been given sufficient time to prepare. This would strengthen public confidence and reduce uncertainty during the transition.
Finally, any reforms must be made in accordance with internationally recognised tax principles developed through the Organisation for Economic Co-operation and Development (OECD). Put simply, the tax system should treat comparable businesses equally, be easy to understand and administer, collect revenue fairly and effectively and adapt to changes in technology and commerce. In Malaysia, reform should protect the welfare of the rakyat while providing certainty to investors and avoiding unnecessary compliance costs. This would also support the Malaysia Madani values of prosperity, innovation, trust and care for the community.
* Hal Lai Keong is a PhD candidate and Dr Ong Tze Chin is a Senior Lecturer, at the Faculty of Law, Universiti Malaya and can be reached at [email protected].
** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.
