GST: The Devil is in the detail

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THE Goods and Services Tax (GST) remains a source of confusion for many as the date of its enforcement on April 1, 2015 looms closer. Some have heeded the government’s call to be fully prepared, while others are still trying to fathom what it all means and what needs to be done.

After Budget 2015 produced the final list of exempted goods and services, many took to work to formulate systems to be set into place before its implementation date.

In fact, last week saw a series of Budget 2015 round-ups nationwide, including in Sarawak, with one underlying theme – GST and how far we should be ready.

But are we really ready?

 

‘Reaching 80 per cent’

As of October 29, the Royal Malaysian Customs Department said the number of companies registered for GST has exceeded 100,000. The number currently stands at 112, 610.

The government’s target is to get 140,000 companies to be registered under the new tax structure.  This means Malaysia has seen about 80.40 per cent of estimated companies registering for the new tax system.

However, if we look at it from the total of 300,000 companies that should be registered for GST, the percentage actually stands at 37.53 per cent.

According to Hudson Chua, partner for Crowe Horwath Kuching, the level of awareness of GST and the requirement in order to comply with all the requisites of GST is gathering pace.

“Awareness is increasing. The issue now is to provide clarity to the businesses and taxpayers as to what they need to do in order to fully comply. I think that’s where we are now,” he said.

Crowe Horwath together with RHB Banking Group organised a seminar last week on Budget 2015 Budget in Kuching, advising Sarawakian businesses to seek clarity and deepen their understanding of their GST needs.

In another Budget 2015 round-up, Ernst & Young (EY) executive director Koh Siok Kiat said while big corporations may be quite advanced into getting themselves ready for GST, the worry is for the small medium enterprises (SMEs) which may find it difficult to get professional help at this stage.

“Although Customs has offered some hand, the long queue to seek Customs assistance is daunting. So what happens to businesses that fall outside of these two groups? Perhaps that’s a concern,” Koh told his audience.

“This is still far from the target of 300,000 businesses, but things are definitely picking up,” said Joshua Voon, Deloitte associate director for business tax and GST.

Speaking to The Borneo Post on the sidelines of Deloitte’s TaxMax seminar this week, Voon believes many businesses in Sarawak are not registered for the GST, especially those operating small and medium enterprises (SMEs).

This is caused by their personal fears of making mistakes in preparing for GST, which can be costly. Others meanwhile do not heed the call to understand what the fuss is all about in transitioning.

Voon thinks most businesses want to take the typical “wait-and-see-first” stance before fully engaging with the GST and registering their businesses.

“Many were also waiting for Budget 2015 to see if there is any possible deferment on this, but that was not the case,” he added.

“Global MNCs (multi-national corporations) will probably have started earlier and is likely to have entered into final stages of preparation, but concern is still on SMEs to both register and equip themselves adequately.”

 

Mandatory registration

Companies which are found to have not registered for the implementation of the Goods and Services Tax (GST) after December 31 this year will be forced to do so, according to Malaysian Royal Custom Department GST director Datuk T Subromaniam.

“From our records, there are over 300,000 companies that should really register with us. If they fail to register before end of this year, we will enforce mandatory registration because we have all the information about them, their businesses and their sales,” he told reporters after giving a briefing on the implementation of the GST at Angkasapuri.

All businesses with sales turnover reaching RM500,000 or more are required to register with the department for the implementation of the GST before Dec 31, this year.

Businesses with less than RM500,000 in annual sales turnover could voluntarily register their companies. Nevertheless, they will be bound by a two-year registration law, unless they closed their operation and companies during that period.

Subromaniam said business owners who failed to register their companies could be charged under Section 96 of the GST Act 2014, which carries a fine of up to RM30,000 or imprisonment of up to two years, or both.

“We also have the power to issue a compound fine of up to RM15,000 on them. We want to help them through our support and training programmes, but only registered companies will be called to receive more information on the implementation of the GST,” he said.

Beyond this point, BizHive Weekly looks at two major questions posed by readers: What should we consider towards GST software implementation? Also, what would GST’s impact be on big-ticket items such as properties?

 

 What should we look out for when it comes to software implementation? 

Having registered for GST, businesses need to ensure that their systems are GST-ready. This means to start looking at the system that they are currently using and determine whether they should upgrade their system or migrate into a new system if the current system cannot support the GST requirement.

Not all GST software can do the trick to implement GST properly as each business need to take into account different goods and services, as well as different categories of exempt or zero-rated products.

KPMG tax director Regina Lau pointed out that certain GST software do not recognise or account for certain items which are GST-related.

“There are some very common items which cause issues in that they do not trigger the system to account for GST, and that is our fear,” she highlighted to BizHive Weekly. “Some of these items, for instance, are reverse charged.

“Based on the practice experience from our regional offices,  a large number of companies have missed reverse charges transactions during the implementation of GST,” she added.

Lau believes mistakes happen not because the business tried to evade GST, but because of the differences in the accounting system itself and how the transaction will be accounted for in the new taxation system.

“No matter how hard we strive to account for items that should be accounted for GST, there could be difficulty for the system to trigger the event,” she observed.

Ensure level of control

Hence, Lau noted businesses should ensure that there is certain amount of control whereby the accounting system will trigger the GST returns for the person who is processing the accounts – or who inputs the details into the system – to ensure that output tax is accounted for.

Apart from that, the KPMG director said during the implementation proce ss, organisations may encounter processes that are unclear of which GST treatment it is. In such cases, she advised businesses to seek the assistance from the Customs for their approvals on the position that the business is going to take.

“The basis for your decision should be documented and businesses should document their processes.

“The GST implementation is based on your current business, processes and supplies,” she highlighted.

Lau added companies should be aware on performing regular updates on their system with regards to changes of the requirement of the GST.

As a proof to Customs that the businesses are following the procedures and guidelines to the GST implementation, she said the key practice is documentation.

GST should be a continuous process for businesses, she added, and organisations need to consider and review various situations, for instance employees dealing with GST implementation left the organisation and the personnel handling the recording of GST into the accounting software.

Higher registration for GST after eVoucher intro

The SME Corp RM1,000 GST software e-Voucher reimbursement has attracted more companies to register for the Goods and Services Act (GST), the Royal Malaysian Customs Department said.

Its principal assistant director (GST) Rozila Saad said the voucher was meant to be a simple, fast and effective way for small and medium enterprises (SMEs) to purchase or upgrade GST-compliant accounting software.

The number of SMEs registering for the GST has increased after the introduction of the incentive, she said.

Note that the government is allocation RM150 million under the 2015 Budget to assist SMEs in acquiring the GST-compliant software.

Fennie Lim, tax executive director of Crowe Horwath, advised businesses to at least seek some GST consultation from experts to find out whether their type of businesses, the transactions they are having, should fall under six per cent (which is the standard rated), zero per cent, out of scope, or exempt-rated supply.

In addition, businesses need to understand how they could make full use of the claim of the input tax.

On a side note, Lim touched on the Price Control And Anti Profiteering Act 2011 which she emphasised has to come hand in hand with the implementation of GST.

She noted that this is because this will have great impact on the pricing adjustment as when GST comes in, it will definitely affect the prices.

“We would like to encourage all businesses to look into the pricing adjustment.

“Bear in mind with this Price Control And Anti Profiteering Act 2011, which means that no one should make full use of the implementation of GST to fatten their profits unreasonably.

“This is the message we want to convey to all the businesses,” Lim said.

 

Will GST impact prices of big-ticket items such as properties? 

The tussle over GST’s impact towards properties continue on as groups such as the Real Estate and Housing Developers’ Association Malaysia (Rehda) as well as the Sarawak Housing and Real Estate Developers’ Association (Sheda) call for a more in-depth look over its impact on property prices next year.

Rehda’s immediate past president Datuk Ng Seing Liong previously called on the government to consider zero-rating certain building materials and residential properties sold below RM400,000 in order to mitigate the impact of the GST on the housing industry.

“GST is a broad-based consumption tax, now it’s already fixed at six per cent. There are certain items that were previously taxed at 10 per cent and now there is a possibility of reducing it to six but that doesn’t mean all the items across the board will be reduced.

“Majority of the materials and labour cost, if you’re a contractor, straight away the six per cent will be there. So it’s rather impossible to say that the prices will not increase,” he said, in reference to tax consultants saying that house prices should not increase with GST.

“For building materials we are recommending certain major items like cement, steel bars, aggregate sand and bricks to be zero-rated so that it won’t affect the low-income people because low-cost housing built for low-income people also needs these materials.”

Houses are actually exempted from GST, meaning developers cannot impose GST on houses that they put up for sale. Having said that, developers still have to bear with GST on the inputs such as bricks, rebar, cement, and so forth in building said houses.

As houses are GST exempt, the developer cannot claim the input tax  as tax credits. Therefore, the GST borne by the developer will be embedded in the selling price.

In short, the cost incurred due to GST will likely be transferred to the buyer hence the increase in the prices of the residential properties.

On this point, Ng said the government should consider different rates for GST, similar to what is applied in countries like Ireland and the UK where certain building materials are taxed at lower rates.

‘No scare tactics involved’

Sheda’s secretary general Sim Kiang Cheok affirmed there many consumers were under the impression that developers and speculators used tactics such as rising property prices to scare buyers into purchasing properties.

“Some are of the view that the market is being driven artificially by parties who want to take advantage of an increase in demand.

“The demand is certainly there, but it is by no means artificial or created by developers,” he stressed.

Sim explained that population growth is approximately rising at 2.2 per cent per annum. In addition, it is anticipated that the urban to rural ratio will increase from 50:50 to 70:30 within the next decade.

Based on those figures on the projected growth of Sarawak’s urban population, Sim said that “It is safe to say that current supply has not yet overtaken demand.”

“However, in Budget 2015, the Government did not list building materials that currently do not attract sales and services tax as GST zero-rated items meaning that materials procured from suppliers will be subjected to GST.

“Although it is true that we cannot tell for certain what the impact of GST will have on the property industry, as developers, it is anticipated that the added cost will unfortunately affect the selling price,” said Sim.

It was recently reported that Rehda anticipates an increase of 2.6 per cent on house properties compared to what the Customs department forecast which is an impact of less than two per cent.

But Sim also noted that the government has introduced favourable policies and incentives for the rakyat in the Budget 2015 such as the youth housing scheme, raising the ceiling household income for PR1MA home to RM10,000 and the extension of 50 per cent stamp duty on instruments of transfer and loan agreements until December 31, 2016.

“The real extent of the effect of GST implementation is still uncertain,” Sim affirmed, adding his call for a continuous open dialogue between developers and the government to resolve any further issues that may come to rise over the next few months.

Other sectoral concerns

Several associations have highlighted key concerns on treatment in each sector which is not entirely clarified.

The Federation of Private Medical Practitioner’s Associations Malaysia, for example, strongly disagreed with the statement from Deputy Finance Minister Datuk Ahmad Maslan that private hospitals and clinics have no reason to raise prices after implementation of Goods and Services Tax (GST) next year.

President Dr Steven Chow in a statement said operating expenses for private clinics will definitely increase with the GST implementation.

“While certain medicines and medical equipment are zero-rated, other parts of the supply chain for private healthcare facilities are not tax-exempt,” he outlined, adding that private healthcare “does not operate in silos” and therefore it is also affected by the cost of items such as rental, water and electricity.

“Costs of medicines are only a small part of a clinic’s operating costs and furthermore, only medicines on the government essential drug list are zero-rated, which does not cover the full range of medications used in private and public healthcare,” he added.

While certain medical equipment are GST-exempt, Chow said these are not items that are purchased daily.

“Disposables, service and maintenance cost of these equipment and all items associated with the use of the equipment are items that are going to be affected by GST,” he said.

“Despite doctor’ professional fees remaining the same even after GST, the overall cost of providing the same service will go up.

“We estimate that this will be from three per cent to five per cent. Therefore, it is incorrect to project that cost will not go up in private clinics and hospitals,” he added.

The Malaysian Booksellers Association also highlighted concerns over overlapping in the books industry between standard-rated and zero-rated books.

Under the GST, books such as dictionaries, encyclopedias, text, reference, work and religious books fall under thezero-rated category and will not be subjected to GST.

The issue lies in the variety of books available in the market, explained Malaysian Booksellers Association president Keith Thong.

“Textbooks for example, they are so diverse.

“The range and format of content being delivered have many options,” he said during a briefing on GST on Monday.

“Classic novels or even graphic novels used as textbooks in colleges may even be categoriese in a bookstore as general reading, and have the full tax applied as opposed to being zero-rated.”