Malaysia: Expectations, apprehensions and concerns on GST

The implementation of a Goods and Services Tax (GST) to replace our existing Sales and Services Tax (SST) has become stale news since the proposal made its maiden appearance during the Budget 2005 speech on Sept 10, 2004. Subsequently Budget 2006 to 2013 came and went without seeing the affirmative sight of its implementation. However, it might be able to be properly implemented after 2014, as economists have views that going slow was more realistic than a plan to expedite the new tax as some had expected. 

The matter was initially raised by Performance Management & Delivery Unit (Pemandu) head, who drew some brickbats when he said at a post-GE13 forum that Malaysia would be able to rake in an additional income of up to RM27 billion if the proposed GST is implemented at 7%, similar to what has been done in neighbouring Singapore. 

However, Malaysia’s Second Finance Minister Ahmad Husni Hanadzlah saying that the government will not implement the GST in the near term as it is still studying its implications and rate to be imposed. 

In view of the national importance of the proposed GST, the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) has conducted a taxation survey which includes a “pre-GST” survey to seek views from the small and medium enterprises (SMEs) 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 policymakers for their consideration. 

Some 2,000 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.

Since the survey was administered through various business entities such as sole proprietorships, and partnerships across multiple industries, covering east and Peninsular Malaysia, establishments of different ages and/of various sizes in terms of the number of employees and 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.

Only less than half of the respondents (45%) agree that the introduction of a GST will help the Government raise more tax revenue. This comes as a surprise since the Government has been propagating that there will be an additional RM1bil revenue that it expects to earn annually from the GST. Hence it must find out the root of this apprehensive psychology of the SME 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 and poultry 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. This may be referred as differ in “GST expectation gap” between the Government and the public! The good news is that the Price Control and Anti-Profiteering Bill 2010 is being enacted to reform the law on price control and to make provisions relating to the prohibition on profiteering. This will prevent consumers from being potentially exploited by some unscrupulous businessmen arising from the imposition of a GST. 

Further, the proposed GST rate of 4% by the Government is only supported by a mere 3% of the respondents. Most of them opine that 2% to 3% is the most suitable rate. Approximately one-third (32%) think that the most suitable threshold for the GST is RM1mil and above instead of the proposed prescribed threshold of RM500,000 and above. This is food for thought and maybe the policymakers should seriously rethink to start at a lower rate and scale up slowly to avoid resistances from the business community. 

Some 35% of the respondents reveal that they are most stressful of learning about existing and/or new tax law. Hence, the Government and the policymakers must make sure that the mechanism and administration of the 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 the public as the SMEs have voiced that their proactive approach to the GST is to read about them 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% are willing to send their staff for external training on the GST by professionals whilst 25% will wait for the Government to provide training. 

What concerns the most is as high as 80% of the respondents have indicated that their computer systems are not ready to cater to the administrationof GST. This is most obvious in the Eastern Region since as high as 92% and 86% of the entities from Sabah and Sarawak respectively have 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 such programmes.

Overall, the survey results clearly point towards the lack of preparedness on the part of the business entities as some 38% of the respondents say that their businesses have not yet prepared for the GST implementation at all. On the other hand, 33% say their degree of preparation is between 1% and 25%. 

Only 4% think 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. About 86% of the respondents actually feel that a 12 month grace period to get the entities ready for the GST is too short. 

The majority of the businesses (67%) feel that they should be given at least 24 months. According to Prime Minister Datuk Seri Najib Tun Razak, it will cost RM222mill to ensure an effective GST implementation. The total figure will cover the GST computerized system (RM139mil) and operational cost (RM83mil). After successfully implemented, the Government will also need to pay an annual maintenance cost of RM8.5mil. Since the GST is such a mammoth project which involves huge public funds, the Government may learn a tip or two from the Hong Kong government’s failed attempt to deploy GST as a single option for roadening 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.