Putrajaya’s complex GST system paving way for confusion, say tax experts

KUALA LUMPUR, Jan 6 —The complexity of Malaysia’s goods and services tax (GST) system coming into effect in April at a flat rate of six per cent has likely discouraged small businesses from registering for the consumption tax, a tax expert has said.

Dr Veerinderjeet Singh, chairman of tax advisory firm Taxand Malaysia, warned of confusion arising from the implementation of the tax because Malaysia has a far longer list of exemptions and zero-rated goods compared to countries like Singapore and Australia.

“The more exemptions and zero ratings you give, the more difficulty traders will have because of administration issues,” Veerinderjeet told Malay Mail Online when contacted yesterday.

He pointed out that while Singapore and Australia only exempt basic food items from the GST, Malaysia has exemptions on 2,900 medicines.

In an effort to help low-income families, Putrajaya has created a complex GST system that could pose administration and accounting challenges to businesses that sell various products including those which are subject to the tax, those which are not and food items that are zero-rated, said Veerinderjeet.

Due to the various exemptions and zero-rated goods, traders would find it difficult to set the final price of their product.
 

“Many are not going to do a detailed analysis. They'll just sell at the same price and add six per cent,” said the tax expert.

Veerinderjeet said many businesses such as small, family-run shops and medium-sized grocery stores in small towns outside the Klang Valley probably failed to register with the Customs Department for the GST by the December 31, 2014 deadline because of the mistaken belief that the tax did not apply to them.

According to the tax expert, it is compulsory for businesses with annual sales of above RM500,000 to register for the GST.

Veerinderjeet said the Customs Department has undergone intensive training and engaged in dialogue with trade and business associations, professional bodies and various industry groups, but noted that many small businesses were not part of such associations.

“It is expected that the Customs Department will be adopting an educational approach at least for the first year of GST implementation as many will make mistakes and errors in their preparations. That is the proper approach and the Department should hold back on its zeal to impose penalties for mistakes and errors made by traders,” he said.

Chartered Tax Institute of Malaysia (CTIM) president Thaneermalai SP SM Somasundram said contrary to public perception that the GST would have a negative impact, it would lower the price of items which previously carried a 10 per cent sales tax.

“This is where the Ministry of Domestic Trade, Co-operatives and Consumerism needs to ensure that such benefits get passed on to the consumer, rather than being kept back in the hands of businesses, by using its Anti-Profiteering Act,” Thaneermalai told Malay Mail Online.

Ratings agency RAM Ratings said last October that the implementation of the GST is expected to push the annual inflation rate from 3.5 per cent forecasted to four per cent this year.
 

Source: MALAY MAIL ONLINE, Malaysia, dated 06-01-2015.