SST basics for small business

The idea: a tax on top of your price

Sales and Service Tax, usually called SST, is a tax charged on certain goods and certain services in Malaysia. If your business is registered, you add the tax to your customer's bill, collect it, and later pass it to the Royal Malaysian Customs Department.

The key idea is that the tax is not your money. You are only the collector. If a customer pays you RM 10,800.00 for a job where your fee was RM 10,000.00 and the tax was RM 800.00, then RM 10,000.00 is your income and RM 800.00 is owed onward. (These are invented figures to show the flow, not a real rate.)

This is different from income tax. Income tax is charged on a business's profit. SST is charged on sales, whether the business made a profit or not. A registered business that has a bad month still has to account for the tax it collected.

Sales tax and service tax in plain words

SST is really two taxes under one name.

• Sales tax applies to certain goods. In general it is charged at the manufacturing stage or when goods are imported, not when a shop sells to the final customer.
• Service tax applies to certain listed services. It is charged by registered businesses that provide those services, such as certain accommodation, food and beverage or professional services.

The key phrase in both is certain. Not everything is taxed. Many goods and services are outside it, and some are exempt. Whether your product or service is covered, and at what level, is decided by the rules, not by your preference.

A cafe owner, a freelance designer, a hardware shop and a landlord can all have different answers to "Does SST apply to me?" For that reason, the best first step is not memorising lists. It is knowing what you sell, writing it down, and asking.

It also helps to know what SST is not. Malaysia used an earlier system called GST, a tax that worked in a chain where businesses claimed back the tax they paid on purchases. SST works differently. In general it is charged once, and businesses usually cannot claim back the SST they pay on their own purchases. That means the tax you pay your suppliers may be a real cost to you. Ask your accountant how it applies in your case.

Do I need to register?

Registration is the formal step of telling the authority that your business will collect SST. In general, the rule works like this: when the value of your taxable sales over a set period goes above a limit, you must register. The limit, the period and the list of taxable items are set by the authorities and can change.

That is why this guide gives you questions, not numbers.

1. Do I sell something that is taxable? Goods or services, the answer depends on what exactly you sell.
2. How much taxable income do I earn? Add up only the taxable part of your sales, not everything.
3. Is that near or over the registration limit? Your accountant or the Customs Department can give you the current figure.
4. Does registration apply to one of my branches or the whole business? Ask when you have more than one outlet.

Two warnings. First, do not charge SST to customers if you are not registered. Second, do not ignore the question until you receive a letter. Check your sales regularly, and if you are growing, ask early.

A good habit: ask your accountant to review your sales once a year with the simple question "Am I near anything that would change my tax position?"

How SST looks in your books

When you are registered, the tax you collect is not income. In your books, it sits in a liability account, because you owe it to someone else. Accountants often call it SST payable.

Here is a sale with tax, using invented figures.

The debit of RM 10,800.00 equals the credits of RM 10,000.00 and RM 800.00. Your sales figure is RM 10,000.00, which is what you earned. The RM 800.00 sits as a debt waiting to be paid.

Later, when you pay it to the authority, the entry is simple.

Tax payable goes down to zero and cash goes down by RM 800.00. Nothing touches your profit, which is exactly the point.

Returns and records

A registered business reports the tax it has collected through a periodic return. In plain words, the return is a summary: here is what I sold that was taxable, here is the tax I charged, here is what I am paying. You file it by a set date and pay what is due.

How often you file, what the form looks like and when it is due are all set by the rules. Check them with the Customs Department or your accountant. Do not copy the dates from a friend, because they may be on a different schedule.

What you can control is the quality of your records. A return is only as good as the invoices behind it. Good records mean:

• Every taxable sale has an invoice with the tax shown separately.
• Sales that are not taxable, or that are exempt, are marked as such so they are not counted by mistake.
• The tax collected is tracked in its own account, so you can see how much you owe at any time.
• Supporting documents are kept, so that any figure can be explained.

When your books are clean, preparing the return becomes a matter of reading a report rather than rebuilding the quarter from memory.

Keeping the money safe

The most common SST trouble is not understanding. It is spending. The tax you collect lands in the same bank account as your other money, so it feels like yours.

Imagine a month in which you invoice RM 10,000.00 of taxable work plus RM 800.00 of tax, and the customer pays in full. Your bank balance rises by RM 10,800.00. If you treat the whole sum as available and spend most of it on stock or wages, you will have trouble when the return falls due.

Two ways to stay safe.

• Set it aside as you go. Move the tax collected into a separate savings pot, or at least keep a running note of it.
• Look at the "tax payable" figure often. It is the amount you currently owe. Subtract it from your bank balance before you think about what you can spend.

The same thinking applies to any tax you collect for someone else. It is a trust, not a bonus.

Common mistakes

• Treating tax collected as income. It inflates your sales and your profit, and it surprises you later.
• Charging tax when you are not registered. Only a registered business collects it. If you are not sure of your status, ask.
• Not showing the tax on its own line. A single total with the tax buried inside is hard to explain and hard to report.
• Applying it to everything. If some of your sales are not taxable, charging tax on them is as wrong as forgetting it on the ones that are.
• Waiting for a letter to find out. Check once a year whether your business has crossed into the scope.
• Mixing the tax into your cash planning. Subtract the tax payable from the bank balance before you plan.
• Losing the supporting documents. Keep invoices and records for as long as the rules require. Ask what that period is.

Most of these mistakes are small, and all of them are avoidable once you set up a routine and a place to put the numbers.

How Faas helps

Faas keeps tax out of your way until you need it, then keeps it in order.

• It stays hidden until you are registered. In Easy Mode, tax features are off until you switch on "tax registered", so owners who do not need them are not confused by them.
• Tax is kept apart from income. When an invoice includes tax, the tax goes to its own account as an amount owed, not into sales.
• Easy Mode shows a tax set-aside figure in Reports, so you can see how much of your bank balance is already spoken for.
• Full Mode has the tax reports, including an SST-02 report, that lay out the figures your return needs. You or your accountant still file the return yourselves.
• Supporting documents stay attached to the entries, so any number can be explained.

Read more on the e-Invoice and SST page and the reports page.