By Stephanie Jacob
With all changes there is a learning curve and period of adjustment and the goods and services tax or GST will be no different. With a large number of zero-rated and exempt goods and new procedures, will the GST be more difficult to implement and adhere to?
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While the concerns of the public in relation to the goods and services tax (GST) has been given a lot of attention, much less has been given to the businesses which will have to adhere to the new tax collection system.
There are several clear differences between GST and the sales and services tax (SST). For example, companies can claim back a certain amount of their tax inputs. However who gets to claim what will depend on whether the goods or service is standard-rated, zero-rated or exempt supply.
GST is more effective in capturing a wider amount of tax because unless you are a registered company, you cannot charge GST or claim back your tax inputs. It demands a more stringent bookkeeping process as businesses will require receipts to make their claims. This is undoubtedly good for the country, as it will be easier for the taxman to document, monitor and audit taxpayers .
Nonetheless it will be a transition for the companies, especially the small and medium enterprises (SME) who will need to revamp their accounting systems to be in line with GST requirements.
Companies are required to register with the customs department if their taxable turnover for either the last 12 months or over the future 12 months exceeds RM500,000, while those who do not pass this threshold can choose to voluntarily register.
Along with these transitional issues which businesses are facing, comes the question of whether the government is complicating the situation further.
Exemption and zero-rated lists confusing?
Prior to releasing the exempt, zero-rated and relief lists last Monday, the government had been accused of entertaining too much lobbying from various parties wanting to be exempted or zero-rated.
Subsequently the length and scope of the lists have been questioned, and DAP MP Tony Pua (left) has said that such extensive lists will make implementing GST “a cumbersome, confusing and complicated tax for consumers, businesses and the customs department.”
Although it is undeniable that GST is a more efficient tax than the current SST, it is only effective if the list of exemptions are kept to an absolute minimum, said the MP. And therefore a lengthy list of exemptions makes it both difficult to implement and adhere to.
Pua said “traders with a mixture of sales of zero-rated, exempt, and taxable supplies have to keep separate accounts for each of these categories of sales, imposing on them a significant additional burden of compliance.”
He added that whether or not willingly or innocently, businesses can be tempted to evade taxes on their taxable supplies or innocently make errors on their now complicated returns. In turn that will call for more investigations and correcting, which will translate into further administration costs.
It is not expected that the longer exempt and zero-rated lists will affect the government’s GST estimates, said Deloitte’s tax partner Tan Eng Yew. This is because GST will bring more of the black economy into the tax net.
KiniBiz previously examined Malaysia’s black economy in a four-part series here.
However there are still operational concerns, especially for SMEs, as expressed by KPMG’s executive director Soh Lian Seng. He said that while the lists were understandable, he was concerned about implementation for businesses which sold similar but unlisted products.
“In the case of medicines, will it be a fixed list or will it later expand?” he asked.
SM Thanneermalai
PricewaterhouseCoopers Malaysia (PWC)’s SM Thanneermalai acknowledged that the lists were politically necessary. But he also cautioned that the concern “with too many exemptions is that implementing the system becomes complicated.”
A complicated filing process?
Businesses will also have to get used to a different filing system under GST from the current SST. While fairly straightforward for the ones that provide goods or services and are paid immediately, it gets more complicated for business that provide services but are only paid later.
In situations such as these, the companies are required to pay GST even if they have not yet collected payment for services rendered. In general GST works under the time of supply concept.
In circumstances where no invoice has been issued or payment made before the goods and services were delivered or made available, then the 21-day rule comes into effect. Under this rule only two dates matter: the date goods and services were delivered or made available and the date of the invoice being issued.
As an example, assuming Company A provides goods or a service to Company B on Oct 17, this date is known at the basic tax point. Company A then has 21-days or up till Nov 7 to issue an invoice.
Let us say Company A then issues an invoice to Company B on Nov 2 — this becomes known as the actual tax point. As the actual tax point is still within the 21-day period, Company A will need to account for the tax of this transaction in its November fillings.
On the other hand, should Company A fail to issue the invoice within the 21-day period which ends on Nov 7, then the GST due will revert to Oct 17. This means the GST will have to be part of October’s filing instead.
In a nutshell, when a company accounts for a tax on a particular transaction does not depend on when it is paid. Companies are required to settle GST due even if they have not received a sen yet.
If payment has not been received after six months from the date of the invoice, it can be classified as bad debt. When this happens, the company can claim back the GST paid on the transaction. If at a date beyond that, the payment is settled then the company will be required to again pay back the GST due.
Soh Lian Seng
KPMG’s Soh said that while on paper it would appear complicated, and will give consultants a bit more work, once a system is in place then it should be fairly simple for businesses.
“No business is going to accept not being paid, so they will chase for payments … and most companies will allocate for bad debt, so they are covered in that way,” said Soh. “They should not use the excuse that they have not been paid to not settle GST.”
Nonetheless settling the tax due for goods and services that have not been paid for may still present a cash flow problem for businesses, particularly the SMEs which usually are already operating on tight budgets. And therefore it is understandable that many businesses are concerned.
It will be interesting to see what steps the government takes to lessen the confusion and concern over these issues and others not covered here. With just over five and a half months to go, theses issues must be addressed quickly and effectively.
Yesterday: Some prices should go down, some up
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