Govt eyes GST input tax credits for manufacturing, construction industries

The government is considering allowing input tax credits under the sales and service tax (SST) system for the manufacturing and construction sectors, in a move to incorporate selected features of the goods and services tax (GST).

Economic adviser to the Prime Minister’s Office, Nurhisham Hussein, said the government was considering the move for selected industries involving multiple layers of production that result in a cascading tax effect.

“Manufacturing, possibly; construction, possibly too,” Nurhisham said on the “Ngopi Dengan Zafrul” podcast, when asked by former Bangi MP Ong Kian Ming which industries were being considered.

Nurhisham and Ong appeared as guests on the latest episode of the podcast, hosted by former finance minister Tengku Zafrul Aziz, which discussed the 2027 budget tabled on Oct 9.

Nurhisham did not specify when or where further details of the proposed system would be announced. He said the 2027 budget speech had been streamlined to focus on its key messages, meaning not every measure was included in the speech.

Ong warned about the creation of a “hybrid monster” of a tax system that could make compliance difficult for businesses and leave customs confused over which taxes to collect.

He also asked how the government could accurately project revenue without clarity on which sectors and manufacturing items would be covered.

“When you have a mix of SST and GST and are not even sure which sectors or items within the manufacturing sector, for example, will be covered, your fiscal revenue projections can sometimes be off,” Ong said.

On Aug 19, government spokesman Fahmi Fadzil said the finance ministry had been tasked with conducting a full study on the proposed integration of the GST and SST before the matter returns to the Cabinet for further discussion.

Fahmi said the study would examine lessons from the previous GST system and issues arising from the current SST system. However, no deadline was set.

On Oct 7, deputy finance minister Liew Chin Tong said the government would retain the SST while incorporating useful GST features to prevent cascading and double taxation. He said the aim was to protect businesses without unnecessarily burdening consumers.

The GST, a multi-stage consumption tax, was introduced in April 2015 at 6% before being zero-rated in June 2018 and replaced with the SST in September 2018.

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