How GST can be made easier

By Stephanie Jacob

What is clear is that the authorities in charge of implementing GST must work towards making its many facets more easily navigable. This includes simplifying the processes for compliance and a better decision-making mechanism when conflicts arise.

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Many Malaysians are sceptical over the goods and services tax (GST) primarily because they have been unimpressed with its rollout and also because they question the government’s ability to properly administer the revenue gained from it.

While the second concern is a long-term issue, the first grouse needs immediate attention. The Customs Department has promised it is working towards the smooth running of GST but has emphasised it needs to be given time to iron out the teething issues which have and will crop up now that the tax is actually being implemented.

Simplification of the process is needed

Deloitte’s GST tax director Chandran Ramasamy believes that Customs needs to work with businesses towards simplifying some of the processes under GST. He used the example of when businesses need to declare their returns and the subsequent cash flow concerns it creates and an example of an area where simplification is needed.

In looking to improve Malaysia’s GST code, Singapore is a good benchmark, said Ramasamy, as both Malaysia and Singapore use the UK’s value-added tax (an alternate name for GST) as their source to formulate their own GST laws.

Given that GST only came into effect this year, it raises the question as to why some of the improvements which have been made by Singapore and other countries were not incorporated from the start.

Ramasamy said that this was probably because Customs started drafting the current GST laws in 2004, and even before that there had been an earlier draft prepared in the ‘90s.

So when Prime Minister Najib Abdul Razak finally announced the date for GST to start in his Budget 2014 speech to Parliament, it was still based on the law which was first drafted in 2004.

Back in 2004, Singapore was still using the older complicated rules like the 21-day rule, which specifies that GST applies within 21 days of delivery of goods and services. But as the implementation of GST in Malaysia kept being deferred over the years, Singapore’s GST evolved and its processes simplified.

“There is some measure of simplification that other countries have done which Malaysia might use. Like simplifying the rules of when they need to declare, because now when the tax invoice comes first they have to declare (in that month). There is further complication in Malaysia’s GST rules because there are other rules about when GST is triggered,” said Ramasamy.

This includes that GST might be triggered on the date when the goods are moved from the supplier’s premises to the customer. There is also the 21-day rule, where if the tax invoice is issued within 21 days from when the goods are delivered then GST is triggered on that specific date. However, if the tax invoice is issued after that time frame, then GST is triggered at the date the goods were shipped out to the customer.

Ramasamy said that it is procedures like this which complicate Malaysia’s GST code and that other countries like Singapore have taken steps to simplify the matter.

“In Singapore, businesses have the choice of declaring at either the tax invoice date or at the payment received date. So it makes it easier for some businesses as it allows them to receive the payment first before raising a tax invoice. This way they receive the payment first and do not have to worry about cash flow issues,” he added.

He admitted these issues were not being widely raised at the moment because many businesses are trying to comply with the current GST rules. “I think it is going to be taking longer (over a longer term) because I think a lot of companies have proceeded with changes to their systems based on the complicated rules right now.”

Nonetheless it is worthwhile for Customs to start considering the simplification of some of these areas in order to improve the tax code over time.

Cooperation and consultation the way forward

Amidst the confusion, there are things that both businesses which are trying to comply with GST rules and Customs can do. According to KPMG Tax Services Sdn Bhd executive director Bob Kee, it will be important for the various parties to keep cooperating and for there to be ongoing consultation.

“One of the possible solutions is to have continuous discussions with the businesses even after April 1 to try and iron out these issues as early as possible, and issue clarifications and decisions.”

Furthermore, Kee said that to iron out the issues as smoothly as possible, it was necessary for both parties to show good faith. He said he “hoped that Customs will not penalise the taxpayers if the GST treatment decided by Customs is not the same as what was adopted by the businesses as these are just differences in technical interpretation”.

But he added that companies must also be responsible and make a reasonable effort to adopt the correct GST treatment for their businesses.

Deloitte’s Ramasamy credited Customs and said that they have been proactive in helping businesses who approach them for advice through their GST hand-holding programmes before the tax kicked in.

He further acknowledged that Customs has indicated that post-implementation it will conduct advisory audits. Ramasamy said that advisory audits usually focused on advising businesses rather than penalising them.

Ramasamy also advised businesses to run a “post-implementation health-check and said that this should be done on a regular basis. Maybe once every three years, to evaluate their compliance level and see if they have any issues”.

He explained that since Customs can run an audit any time during a period of six years from filing, it is good for businesses to do a self-assessment in between to ensure they are reporting accurately and to avoid back taxes later on.

Final decisions need to be made faster

The one area Ramasamy believes Customs, and by extension the Finance Ministry, needs to improve on is in reaching decisions when confusion or conflicts arise.

He highlighted the issue of healthcare which has been the subject of an ongoing discussion between the parties for a long time now without any final decision being in sight yet.

“Sometimes the consultation and negotiations seem like a never-ending process. So at some point there must be an escalation to the minister (Finance) so that matters can be resolved faster. Businesses want closure on the issues facing them and a final decision must be taken faster, either by Customs or by the minister,” said Ramasamy.

A GST appeal tribunal must be established

Ramasamy said if a policy decision is made by Customs or the Finance Ministry and they are unwilling to entertain any further discussions or negotiations, there should still be an avenue for resolving disputes between the administrators and businesses.

To deal with such cases it is necessary to set up a GST appeal tribunal under the purview of the finance minister. Although the forming of an appeal tribunal is provided  for under the GST Act, it has not been formally established, explained Ramasamy.

“In the next stage when Customs goes for audits, and a taxpayer disagrees with a decision, they should be able to go to the tribunal. This is a crucial thing for dispute resolutions,” Ramasamy said.

The GST appeal tribunal is similar to the one already established to deal with conflicts related to the sales and services tax, which is known as the Customs appeal tribunal. Therefore, the model is already there and all that needs to be done is for it to be remodelled for GST.

Yesterday: Consumer confusion and cash flow concerns

Tomorrow: ‘Give us time’