1. Treatment of Pre-Reform Income (Prior to 1 July 2025)
A. Margin-Based Profits (e.g., Property Flipping, Used Car Sales)
- Not subject to Sales and Service Tax (SST).
- Fully declarable under Income Tax (Form B / BE, as applicable).
B. Commission-Based Income
- Exempt from SST irrespective of quantum or frequency.
- Subject to income tax declaration via Form B / BE.
2. Post-Reform Income Taxation
A. Commission-Based Income (Agency and Brokerage Activities)
SST Liability Criteria
- Applicable where annual commission income exceeds RM500,000 and
- Commissions are derived from commercial property transactions.
Taxation Rate
- SST imposed at 8% on taxable commissions.
SST Exemptions
- Annual commission income not exceeding RM500,000.
- Commissions derived solely from residential property transactions.
- Fees paid by registered property developers (classified as B2B services).
B. Margin-Based Profits (Trading / Dealer Activities)
1. Used Property Transactions
- SST applicable at 10% on profit margin.
- Computation Formula: SST Payable = 10% × (Selling Price – Purchase Price)
2. Scrap / Material Trade
- 0% SST for sales of raw scrap to licensed recyclers.
- 10% SST for processed scrap or sales to commercial entities.
3. Mandatory Compliance Requirements
A. Where Commission Income > RM500,000 (per annum)
- SST Registration: Mandatory under the Sales Tax Act 2018.
- SST Filing: Monthly via Form SST-02.
- Income Tax Filing: Annual via Form B.
B. Where Income Arises from Margin-Based Activities
- SST Registration: Mandatory.
- SST Filing: Monthly submission (Form SST-02).
- Income Tax Filing: Annual via Form B.
C. Where Commission Income ≤ RM500,000 (per annum)
- SST Registration: Not required.
- SST Filing: Not applicable.
- Income Tax Filing: Annual via Form B.
4. Record-Keeping and Documentation
A. Commission-Based Transactions
- Executed sale or lease agreements.
- Invoices reflecting SST (where applicable).
- Client classification records (B2B vs B2C designation).
B. Margin-Based Transactions
- Original purchase documentation.
- Sales agreements or receipts.
- Detailed margin computation records.
C. General Requirement for All Taxpayers
- Maintain bank statements and transaction records for a minimum of seven (7) years, as per statutory retention requirements.
5. Enforcement and Penalty Framework
- Failure to Register for SST: Financial penalties between RM1,000 and RM20,000.
- Underreporting of Taxable Income:
- SST penalty of up to 45% of unpaid tax.
- Income tax penalty of up to 100% on undeclared income.
Fraudulent Declarations:
- Imprisonment not exceeding 5 years,
- Fines as stipulated under the Sales Tax Act and Income Tax Act.
Grandfather Clause: Transactions governed by contracts executed prior to 1 July 2025 are exempt from the revised SST regime until contractual expiry, in accordance with transitional relief policies.
Key Takeaways
- Pre-1 July 2025: SST not applicable; only income tax applies.
- Post-1 July 2025: Dual compliance required (SST + income tax) for qualifying activities.
- Important Distinction: Differentiate residential (SST-exempt) from commercial (SST-applicable) commissions.
- Operational Advisory: Leverage JKDM’s official SST Calculator to ensure precise filings and avoid penalties.