KUCHING: It is a very busy time for accounting firms in Sarawak.
The rollout towards implementing the Goods and Services Tax (GST) is no easy task. Businesses both present and upcoming will need to heed the call to implement a system to account for this new tax. This requires massive planning, preparation and accountability by April 1, 2015.
Thus enters the role of accounting firms like Ernst & Young (EY) and KPMG, aiding local players with this ginormous task.
This, on the back of booming businesses thanks to the Sarawak Corridor or Renewable Energy (SCORE), promises to keep the ball rolling for accounting firms here in terms of demand for audit, tax and advisory services.
EY partner for Assurance Services, Michelle Au-Yong, said SCORE was the major push factor to this end.
“Sarawak offers unique advantages for investors looking for investment opportunities – large land banks with purpose-built industrial infrastructure, rich natural resources, geographical proximity to supply and market, and attractive tax incentives,” she told BizHive Weekly in an interview.
Au-Yong further said the availability of hydropower – a renewable energy source – has also helped Sarawak attract and develop energy-intensive industries in the state, in addition to spillover industries surrounding them.
Wong King Yu
Deloitte Malaysia’s East Malaysia branch director, Wong King Yu shared the similar opinion, adding that the state’s focus on developing the SCORE remains a key catalyst for growth for local businesses and industries.
Wong noted that in the last three and a half years, the total approved investment is almost RM30 billion, mostly from Japan and Korea, particularly in the energy-intensive industries of Samalaju Industrial Park in Bintulu.
During the same period, he said SCORE, currently in phase 1 (2008-2015) spent RM2 billion to build critical mass and momentum to trigger development and implement high priority infrastructure projects.
“Investors, especially foreign multinational companies are being drawn to the region because it is rich in energy resources, with an energy potential of 28,000 megawatts (MW) of which 20,000 MW are in hydropower and 5,000 MW in coal-fired plants and the remaining 3,000 MW in other energy sources including biofuel,” he explained.
Wong added that this rapid development in areas along SCORE like Samalaju Industrial Park in Bintulu would not only drive direct demand in industries like construction and logistics, but boost other industries like real estates, hospitality and others which will directly benefit the local businesses including local small and medium enterprises (SMEs).
To note, SCORE has so far atteacted 18 projects with a committed investment of RM29.43 billion, creating up to 16,000 jobs.
In disclosing this, Assistant Minister of Industrial Estate Development, Datuk Peter Nansian after chairing the third meeting of Samalaju Industrial Park earlier this week notes that foreign investment made up 59.2 per cent of total equity in SCORE.
The latest patron of SCORE is Cosmos Chemicals Bhd (Cosmos, an affiliate of Al Jubail City, Saudi Arabia’s Project Management and Development Company. The group on March 11 signed a supply contract with GT Advanced Technologies Inc to construct a new polysilicon plant in Samalaju Industrial Park, the second of its kind here after Tokuyama.
Opportunities within certain sectors
For EY, agriculture is another sector with capacity for growth, with palm oil being a major export product for Sarawak.
“Investments in the agricultural sector and hydropower will inevitably provide opportunities for downstream activities.
“In summary, Sarawak, with its wealth of natural resources for economic development, may prove more resilient to economic tightening, therefore providing a more stable investment environment,” Au-Yong opined.
Similarly, Deloitte is upbeat about the growth for the year ahead and sees great opportunities in the developments and untapped markets in Sarawak where they can work hand in hand with the businesses here to stay ahead of their game.
“Over the last few years, Deloitte has been assisting multinationals here with their investment in SCORE corridor and also guiding local businesses and SMEs alike on statutory compliance requirements, government incentives as well as goods and services tax (GST) preparations.
“Deloitte TaxMax, a budget seminar which we hold across various states every year have benefitted hundreds of businesses in Kuching and we look forward to hosting it again this year,” Wong highlighted.
Sustained demand for auditing, supported by new MFRS
The demand for assurance services will always be present, according to Au-Yong, because all companies incorporated in Malaysia are required by the Companies Act to have their financial statements audited by external auditors.
“Moreover, with the influx of foreign investors setting up in SCORE in particular the Samalaju Industrial Park, we have had an increase in requests for proposals (RFP) for audit and tax services,” she added.
She further noted that it is also timely that effective January 2012, all Malaysian companies are able to adopt the new Malaysian Financial Reporting Standards (MFRS).
The MFRS, Au-Yong highlighted, is fully convergent with the International Financial Reporting Standards (IFRS).
“Those companies that comply with the new MFRS framework can make an explicit statement that they are fully compliant with IFRS, which is convenient for foreign investors as it makes Malaysian financial reporting comparable on an international level.
“Likewise, for those private and public-listed companies that plan to grow their businesses and expand regionally, having their financial statements reported in MFRS and audited by a reputable global accounting organisation will be advantageous in terms of tapping on the organisation’s global experience, knowledge and network,” she explained.
GST implementation to lead to increase in tax and advisory services
With recent changes to Malaysian legislation, businesses are faced with increasing pressure to comply with various regulations and filing requirements.
For instance, the recently announced GST to be implemented in 2015 necessitates that businesses ensure their operations and system are ready by then, a development that professional services firms are very much aware of.
“With the clock counting down to April 1, 2015, we expect, not just us but tax and advisory services providers in general, to get busier as we assist businesses (both local and foreign) to gear up for GST,” Tham Lih Jiun, executive director in Tax Services, Deloitte Malaysia, projected.
Tham noted that this is expected as generally, business entities would not have the additional personnel and skill required to implement GST readiness procedures.
“Even multinational corporations (MNCs) with GST experience elsewhere would require advisors’ input to provide local GST assistance as GST in Malaysia cannot be said to be exactly the same as GST/value added tax (VAT) in any one country,” she added.
Bernard Yap
Bernard Yap, Partner, Tax Services, EY, shared similar sentiments, highlighting that in Sarawak, there will certainly be a heightened demand for tax and advisory services in respect of GST implementation as the deadline for GST draws nearer each day.
Yap went on to add that many businesses, clients as well as non-clients, have requested for proposals and presentations to enlighten them about the transformations that need to take place so that they are GST ready by April 1, 2015.
In fact, he observed that many have already started while some are half way through Phase 1 of the implementation process.
‘No simple process’
“GST should not be misunderstood as a simple process of imposing six per cent on top of the normal price,” Yap said.
He explained that successful implementation of GST requires a detailed impact study to be carried out (amongst others, assisting clients to look into the costs of doing business and the reviews of pricing, policies and processes).
In addition, a road map needs to be designed in order to put in place all the necessary changes to accommodate GST and finally, good IT infrastructure and training for all the relevant staff of an organisation.
Yap further explained that all these will need to be completed within the next 12 to 13 months and time is running out. Hence, he advised that businesses should commence preparation work as soon as possible in order to carry out a sufficiently thorough study and avoid pitfalls.
“At EY, we have had the opportunity to help some of our major clients with GST implementation since it was announced some seven to eight years ago.
“As a result, our Sarawak GST team headed by Linda Kuang has built up substantial local experience in GST implementation,” he affirmed.
Yap highlighted that the team works closely with their Tax executive director, Koh Siok Kiat, in Kuala Lumpur, who has been dedicated to look after the East Malaysian market.
“In addition, we are also supported by our global resources in terms of technical and industry expertise,” he added.
When queried on the percentage increase expected in terms of customers for these services, Yap said that they are expecting a substantial increase in terms of engagements as GST will impact all businesses in one form or another.
“The implementation of GST will require major transformations in an organisation and we believe many will need professional tax and advisory help to carry out a successful transition into GST,” he reiterated.
Educating the public on GST
Efforts have and are still been made to educate businesses in Sarawak, according to EY and Deloitte Malaysia, two of largest professional services firms in Sarawak.
According to Koh Siok Kiat, executive director of Tax Services, EY, there are already on-going efforts to educate Sarawak businesses on GST.
“Currently, we are running a number of client specific workshops as part of the GST readiness programme,” he said.
In the past number of years leading up to the announcement of the GST implementation date, EY has been sharing GST updates with their clients and non-clients through their annual Tax Budget Seminar roadshows in Kuching, Sibu, Bintulu and Miri.
In addition, EY assisted to submit a Memorandum on GST for the forest and timber industry in Sarawak to the Tax Review Panel (TRP) under the Ministry of Finance in 2006, and they have been collaborating closely with the relevant authorities on GST implementation matters.
“Our EY tax partners have also shared insights and information about GST in the various media,” Koh added.
To date, Deloitte Malaysia has also been educating Malaysian businesses on GST through workshops, roadshows, and others.
“Across the board, Sarawak no less, Deloitte has been collaborating closely with the Inland Revenue Board of Malaysia (IRB), chambers of commerce, and trade associations to gear Malaysian businesses up for GST from workshops, roadshows to one-on-one consultations,” Tham said.
She highlighted that Deloitte tax professionals around the country including Kuching and the region are working round the clock to support its clients to be GST ready and compliant.
“At the same time, we are wary that SMEs in particular lack awareness on GST and are seeking ways to help bridge this divide,” Tham added.
Tapping into the demand for professional services
As one of the leading “Big 4” professional services organisation in Sarawak, EY is confident that with their highly integrated assurance, tax, transaction and advisory services, they are able to offer a “one-stop-shop” to investors, local or foreign, who are interested to set up their businesses here.
With prominent presence in Kuching, Bintulu, Sibu and Miri, EY Sarawak currently audits around 60 per cent of the Sarawak based public-listed companies.
According to Au-Yong, tax advisory services are critical, especially for foreign investors, as some of the most compelling reasons to invest here have to do with the attractive tax incentives and import/export duties exemptions available.
“Our transaction and advisory services professionals have also assisted in conducting due diligence, feasibility studies and market research for some of these investors who have since established their presence in Sarawak.
“Going forward, with the establishment of the Asean Economic Community (AEC) by 2015, our services may be given a healthy boost,” she emphasised, noting that AEC aims to transform ASEAN into a region with free movement of goods, services, investment, skilled labour and a freer flow of capital
Au-Yong further highlighted that areas of cooperation include human resources development, consultation on macroeconomic and financial policies, trade finance, enhanced infrastructure and communications including electronic transactions, promotion of regional sourcing and enhanced private sector involvement.
These are all areas which EY can provide advisory services for, and with that, they look forward to the opportunities that will arise from the AEC network.
“Indeed, in many ways, EY in Asean mirrors the AEC. Globally and in Asean, we operate as a highly integrated, consistent organization with a borderless approach in terms of our mindset, actions, structure and people.
“As such, we are able to provide our clients with faster responses and more tailored services from highly networked, experienced teams with deep industry knowledge,” she concluded.