Expectations, apprehensions and concerns on GST

The implementation of GST (Goods & Services Tax) to replace our existing SST (Sales & Services Tax) has become a stale news since the proposal made its maide n appearance during the 2005 Budget speech on 10 Sept 2004. Subsequently Budget 2007, 2008, 2009 & 2010 came and gone without seeing the affirmative sight of its implementation until the first parliamentary reading of the GST bill in December 2009. Nevertheless, the second reading which was originally scheduled in March this year was postponed indefinitely. The reason is that the Government needs more feedback from the public.

In view of the national importance of the proposed GST, the ACCCIM (Associated Chinese Chambers of Commerce and Industry of Malaysia) has conducted a taxation survey which include a “Pre GST” survey to seek views from the SMEs (Small and Medium Enterprises) and gauge their reactions relating to the proposed GST model. The survey aims to understand their expectations in order to communicate them to the Government and the policy makers for their consideration.

Some 2000 questionnaires contained multiple questions covering various taxation aspects from “general” to “pre-GST” and “tax audit” topics were sent to the selected members of the ACCCIM. The survey is opened for the whole month of June 2010. In this connection, ACCCIM has received an encouraging response of 62.5%.

Since the survey was administered through various business entities such as sole proprietorships, partnerships & sdn bhd across multiple industries, covering east & west Malaysia, establishments of different ages and of various sizes in terms of the number of employees & annual turnover , the survey results are truly representative of the opinions of the Malaysian business community and comprehensively cover the views of the SMEs by large.

Less than half of the respondents think that GST will achieve its purpose

Only less than half of the respondents (45%) agree that the introduction of GST will help the Government to raise more tax revenue. This comes as a surprise since the Government has been propagating that there will be an additional RM1billion in revenue that the Government expects to earn annually from GST. Hence the Government must find out the root of this apprehensive psychology of the SMEs community and address it, failing which they will not support a replacement tax which they think will be futile.

Although the Government has emphasised time and again that essential goods such as rice, cooking oil, sugar, eggs, poultry and etc will be zero rated supplies, it is indeed disturbing to discover that 82% of the entities surveyed still believe that the proposed GST will certainly burden the poor since it is inflationary. This means that the Government’s campaign in this aspect has not achieved what they desired. I shall refer this as differ in “GST expectation gap” between the Government and the Rakyat ! The good news is that there is the Price Control and Anti-Profiteering Bill 2010 is being enacted recently to reform the law on price control and to make provisions relating to prohibition on profiteering. This will prevent the consumers from being potentially exploited by some unscrupulous businessmen arising from the imposition of GST.

Further, the proposed GST rate of 4% by the Government is only supported by a mere 3% of the respondents. Most of the respondents opine that 2% to 3% is the most suitable rate. Approximately one third (32%) thinks that the most suitable threshold for the GST is RM1 million and above instead of the proposed prescribed threshold of RM0.5 million and above This is a food for thought and maybe the policy makers should seriously rethink to start at a lower rate and scale up slowly to avoid resistances from the business community.

There is an alarming finding that 71% respondents indicated that they will not use the electronic filing for the income tax returns this year. Even those in the Information Communication & Technology (ICT) industry, only 40% of the entities pledge to use e-filing. Although Central Region is more advance in ICT, nevertheless 79% and 73% of the business entities in Kuala Lumpur and Selangor respectively have indicated their preference of conventional manual filing of annual tax returns. Thus, further efforts should be taken to encourage electronic filing in wake of the proposed GST implementation.

Some 35% respondents revealed that they are most stressful of learning about existing and/or new tax law. Hence, the Government and the policy makers must make sure that the mechanism and administration of GST is as simple as possible so that the public is receptive of it.

The Government should make full use of the media to educate to Rakyat as the SMEs voiced that their pro active approach to GST is to read GST articles in the media. Further, one third of them have voiced their dissatisfaction over the lack of GST public information. Training is also vital because 31% is willing to send their staff to attend external training on GST conducted by the professionals whilst 25% will wait for the Government to provide training.

What concerns the most is as high as 80% of the respondents indicated that their computer systems are not ready to cater for the administration of GST. This is most obvious in the Eastern Region since as high as 92% and 86% of the entities from Sabah and Sarawak voiced that their computers are not yet ready for GST implementation. In this connection, the Government should consider giving free GST software in order to kick-start the GST programmes.

Only 4% SMEs think that they are ready for GST

Overall, the survey results clearly point toward the lack of preparedness on the part of the business entities as some 38% of the respondents said that their businesses have not yet prepared for the implementation of GST at all. On the other hand, 33% said their degree of preparation is between 1% to 25%. Only 4% thinks that their readiness for GST is above 75%. This can be interpreted that a longer grace period is required before the GST comes into force. 86% of the respondents actually felt that 12 months grace period to get the entities ready for GST is too short. The majority of the businesses (67%) felt that they should be given at least 24 months.

According to our Prime Minister, Datuk Seri Najib Tun Razak, GST will cost RM 222 million to ensure its effective implementation. The total cost would cover GST computerised system (RM139 million) and GST operational cost (RM83 million). After successfully implemented, our Government will also need to pay GST annual maintenance cost (RM 8.5 million) annually. Since GST is such a mammoth project which involves huge public funds, our Government could learn a tip or two from the Hong Kong Government’s failure attempt to deploy GST as a single option for broadening their tax base after conducting a public consultation on the proposed tax reform. The above survey results reveal the expectations, apprehensions and concerns of the SMEs and provide an insight to the policymakers to address the same for a successful implementation of the GST. Clearly there is a message to the Government where the implementation efforts should be aimed at.

Article written by LLKG INTERNATIONAL and published in the Star on 21 August 2010

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