Wrong to claim that SST is compound tax, says Tony Pua

Special officer to the finance minister Tony Pua has refuted the claim by the Malaysian Association of Tax Accountants (Mata) that the sales and services tax (SST) will result in higher costs of goods due to compound tax.

In a statement, Pua said that the SST, which is set to be reintroduced by the new government on Sep 1, was a one-stage tax and not a multi-stage tax.

He was referring to Mata president Abd Aziz Abu Bakar’s claim that prices of goods would rise upon the introduction of SST as the entire business chain would be taxed.

Abd Aziz had stated, as an example, an RM10 product which would be sold by a factory to a wholesaler at RM11 due to SST. He claimed that this cost would, in turn, rise as the item is sold to the retailer at the starting price of RM11, and that this would compound all the way to the final consumer.

"That is the compound tax situation that I mean, and the prices of goods will increase at the same time. That is the weakness of the SST," he was quoted as saying by Utusan Online.

However, in his statement today, Pua insisted that Abdul Aziz's explanation of the impact of the SST on the price of goods and services was wrong.

"SST is a one-stage tax, not multi-stage.

"In the example given by Abd Aziz, the amount of the tax collection by the government is just RM1 from the sale of an RM10 product, from the factory to the wholesaler. But the government will no longer collect any tax from the wholesaler, the distributor and retailer.

"This means the sale price between the wholesaler, distributor and retailer, and the profit then obtained at every level of the sale would be subject to market forces ('kuasa pasaran')," the Damansara MP said.

Pua then gave an example of how an RM10 item would only be taxed RM1 under the SST.

In comparison, he said, under the GST, the government would eventually collect RM1.20 in tax from an item originally worth RM10 as it progresses down the supply chain and after refunds are given.

He said this showed that the GST is a far more complicated tax, which burdened everyone in terms of implementation and management compared to the SST.

Malaysiakini has provided an in-depth look at how both taxes work in a Kiniguide. - Mkini