Date of publication: Nov 6, 2013
Section heading: Business Times
Page number: 007
Byline / Author: By Bernard Yap
AS EXPECTED in the 2014 Budget, the Minister of Finance announced the implementation of the goods and services tax (GST) at the rate of six per cent, effective April 1 2015.
This means that businesses have 17 months to successfully implement GST, which is a tax on the values added at each stage of production, and which can be cost-neutral to a business with the burden falling on the final consumer. Concurrently, the sales tax and service tax will be repealed.
Similar to previous changes, which had a large impact on business organisations, such as Y2K and conversion to Financial Reporting Standards, the GST implementation will require a major transformation exercise, starting with a study on the an impact of GST and designing a roadmap for the implementation of changes to accommodate GST, to finally evaluating the readiness of GST reporting.
The impact study would encompass the review of business processes, the impact of sales or service tax removal to product pricing, legal ramifications on long-term contracts spanning the GST implementation period, GST impact on employees' benefits, capabilities of existing accounting and information technology (IT) systems, and cash flow impact on the business. One should appreciate the magnitude of this study, given the impact of GST across the entire business organisation. Depending on the size of the organisation, it would normally require two to four months to complete the impact study.
Issues identified during the impact study that cannot be resolved will need to be brought up to the attention of the Customs Department or GST Implementation Office, within the Finance Ministry. The Customs may consider the possibility of issuing private rulings to resolve these outstanding issues if discussions are held at an early stage.
Once a business organisation understands the impact of GST on its day-to-day operations, the respective departments will need to draw up their own roadmaps or blueprints to determine the changes to their business processes.
These would include amendments to Human Resource policy, configuration of existing accounting systems or replacement of the current accounting systems with a GST-compliant software, reviewing of product pricing and credit terms provided to customers, training for internal employees and suppliers/vendors and changes to existing documentation.
Generally, 12 to 15 months would be sufficient for business organisations to roll out these changes.
Following the implementation of GST, business organisations should monitor the monthly GST reporting processes and evaluate the effectiveness of the changes recommended to accommodate GST.
During this time, businesses can better appreciate the practicality of the changes to their day-to-day processes and determine whether further enhancements will be required. Internal audit and constant reviews will be necessary, given that GST reporting is on a monthly basis and not an annual affair.
The successful implementation of GST will enhance the competitiveness of each business organisation, and ultimately strengthen our nation's fiscal position.
Bernard Yap is tax partner of Ernst & Young Tax Consultants Sdn Bhd. The views expressed above are his own and do not necessarily represent the views of Ernst & Young.