Majority of Malaysian businesses not GST-ready

Wednesday, 18 September 2013 admin-s

(The Sun Daily) - FMM said local businesses, especially the small and medium enterprises (SMEs), are still adjusting to higher costs of production following the introduction of the minimum wage, the minimum retirement age for private sector employees, increased Employees Provident Fund contributions beyond 55 years and rising costs of transport, including port charges.

As the push for the implementation of the much-awaited goods and services tax (GST) gathers pace, it is found that as low as 5% of Malaysian businesses are prepared for the consumption tax.

According to the Federation of Malaysian Manufacturers (FMM), local manufacturers are not preparing themselves for GST as the government is still evaluating the pros and cons and readiness of the population to accept the new tax regime.

"We understand that a number of companies do not have any allocation in their annual budget to prepare for the GST," FMM told SunBiz.

A survey by FMM in April 2012 to assess the readiness of businesses in implementing GST showed that over 60% of businesses that responded were not ready for GST. The remaining 40% indicated that they have made some preparations, such as attending seminars and training to familiarise themselves with the GST scheme.

However, the FMM survey noted that multinational corporations would have the least problems adopting GST as they can leverage on the expertise from their global network of offices.

FMM said local businesses, especially the small and medium enterprises (SMEs), are still adjusting to higher costs of production following the introduction of the minimum wage, the minimum retirement age for private sector employees, increased Employees Provident Fund contributions beyond 55 years and rising costs of transport, including port charges.

The federation is of the view that the GST implementation should be deferred as it imposes heavy tax administration burden on industries, in particular the SMEs.

Deloitte Malaysia country GST leader Tan Eng Yew (pix) told SunBiz most businesses are undecided whether to embark on any GST readiness exercise pending affirmative announcement by the government.

Tan observed that less than 5% of the businesses have started getting themselves ready.

He said GST preparation has wide-ranging implications requiring the involvement of people, processes and technology as all these components would be critical for businesses to be GST-ready.

Tan said top of the wish list of businesses is to allow a deduction of all GST implementation cost. Smaller businesses are also hoping that the government will provide free software to assist them to be GST-compliant.

What would be the appropriate GST rate to begin with?

Tan believes it should be 6% to justify a tax system revamp of this magnitude to replace the existing narrow-based service tax of 6% and sales tax of generally 10%.

When it was mooted in 2004, he said, the proposed GST rate was 4% but based on the Performance Management & Delivery Unit's simulation at 5%, it may generate additional revenue of up to RM8 billion.

"We anticipate the introduction of GST will be followed by a reduction in corporate and individual income tax rates, which would make our tax structure more competitive regionally," said Tan.

He added that export-oriented businesses will benefit tremendously since the GST system zero rates all exports of goods and services, thereby enhancing price competitiveness.

For the government, the wider base of GST ensures a fairer tax system.

Meanwhile, FMM said GST will not only add to the tax burden but will also lead to a manifold increase in the volume of administrative work.

"We do not see GST benefiting businesses in the manufacturing sector. We acknowledge that the government has to take steps to reduce the budget deficit. However, introducing GST to deal with the persistent budget deficit may not be the only way forward," it said.

"We are of the view that reducing wastages or leakages in government expenditure, ensuring better value for every ringgit spent and improving efficiency in utilising public funds to reduce the current deficit should be given priority over the introduction of GST, which would hurt the economy, especially given the weak external environment," it added.

The federation said, instead, the government must ensure that the export sector remains vibrant and competitive given the intense competition in global and regional markets.

It added that all forms of help should be given to Malaysian exporters and SMEs to achieve the required cost and productivity efficiency.