Challenges of GST: Cost management and competitiveness


Compelling reason: The strongest reason for businesses to register for GST would be because of customers insisting they do so, according to Tan from Deloitte. - Bloomberg

Consumers may have their concerns about GST (goods and services tax), but the reality is that the bulk of the challenges which it will bring about rests squarely on the shoulders of local businesses. 

“A lot of people are talking about GST and the effect on consumers, but in my opinion, what affects businesses is more difficult to handle because of the compliance costs,” says Joel Liew, chief technology officer at Feradigm Sdn Bhd. The company is one of the GST software vendors that has been approved by the Royal Malaysian Customs Department (Customs). 

This, he says, is because the onus lies on businesses to determine the appropriate GST treatment for each and every one of their products or services. 

“Every item needs to have its individual tax code,” Liew says, adding that there are over 20 different GST codes that will be used in Malaysia. 

Based on his interactions with SMEs thus far, he feels that most of them are not truly ready for GST. 

“They have all attended some kind of course or seminar on GST. They understand in principle what the laws for GST are and what they need to do. But when it comes to applying it to their own business, they are lost,” he says. 

Furthermore, he notes that many SMEs (small and medium enterprises) have not used accounting software in the past. In his opinion, this would becomes an issue once GST sets in as the added complexity means that companies can no longer rely on manual means to upkeep their accounting records.

To register or not to register? 

Currently, businesses that make $500,000 and above for their annual sales turnover are required to register with the Royal Malaysian Customs Department (Customs) in order to get a  GST identification number. Only companies that have registered with Customs are authorised to levy GST. For all other firms that are below this threshold, registration for GST is voluntary. 

“To remain competitive, they may choose not to, so they will end up absorbing the GST that their suppliers charge them,” Liew says. 

“They will remain competitive as they may be able to charge consumers a price that’s lower (than GST registrants). On the other hand, they will not be able to claim input tax credits (the amount which a business has spent paying for GST from suppliers which they can then offset when remitting the GST collected from consumers to the government).” 

To Liew, the decision on whether or not to register as a GST vendor really depends on the nature of a company’s business.

“You have to look at the overall picture and study your own business. Are your suppliers charging you a lot of GST? If they are, you might as well register. But that is also at the discretion of Customs whether to accept your application or otherwise,” he explains. 

In addition, Tan Eng Yew, executive director, GST, customs and global trade at Deloitte Touche Tohmatsu Tax Services Sdn Bhd (Deloitte) says that customers themselves may provide a compelling reason for businesses to register for GST. 

“The strongest reason would be that your customers are insisting that you do it,” he says, but adds that in general, it is good for businesses to register themselves for GST, no matter how small their operations may be.

“If nothing else, it makes you become more disciplined in maintaining your accounting records.” 

In direct contrast to consumer behaviour, who would be in a buying frenzy in the hopes of avoiding price hikes consequent to GST, Tan says businesses may instead prefer to delay their purchases. 

“It’s not so straightforward for businesses because they would want to claim back the GST they pay (in the form of input taxes). But of course, this depends on what they are buying and presumes that the thing is taxable in the first place,” he says. 

On the whole, Bernard Yap, partner, tax, indirect tax and financial services at Ernst & Young Tax Consultants Sdn Bhd expects a large number of GST registrants to come from the SME community. 

“It is a bit more of a challenging environment for SMEs. Managing cost is going to be important for them,” he says, meaning that it would likely motivate most of them to register. 

“The challenge here is not to focus too much on GST that you forget to do business. You ought to spend the right amount of money on GST systems so that it helps you automate the process (of record keeping) so you won’t have to spend too much time doing it.” 

Hopes and fears 

Although ICT products and services are mostly standard rated for GST, it isn’t a completely bleak situation for industry players. 

“Some software companies may benefit a lot because of the GST compliance needs of the business community,” says Cheah Kok Hoong, chairman of PIKOM, the national ICT association of Malaysia. 

Meanwhile, on the hardware front, he says, “We foresee some increase in hardware sales prior to GST.” 

However, Cheah notes that this did not necessarily signal a bigger slice of revenue for hardware sellers. 

“Due to the exchange rate hikes a few months back, most sellers are making single digit profits. Even for consumer products, the margin is no longer in double digits,” he says. 

He still hopes that the government would reconsider zero rating ICT goods and services, and says PIKOM. 

“We understand that it’s not that straightforward to get things zero rated. But it will help as technology has become a crucial  enabler for businesses to improve their productivity,” he explains. 

Besides this, Johary Mustapha, president of the Malaysian Mobile Content Providers Association (MMCP) urges Customs to provide greater clarification on policies applicable to specific ICT sectors, particularly the telecommunications industry.

“My concern is this: Why is Customs not providing more guidelines in their rush to get GST implemented in 2015? They should organise public consultation forums to get input from all industry stakeholders,” he points out. 

Other areas of concern which he would like to see answered by Customs include details on who will regulate and set the standards for GST for telco services. 

“It’s going to affect all Malaysians since everyone is on their handphones,” Johary says. “It’s good to avoid misinformation as it will result in less confidence from the general public.”

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