Compliance hurdle to GST, Malaysian taxmen told

BY ZURAIRI ARFEBRUARY 26, 2014

Compliance may be an obstacle, but Customs estimates that more than
80 per cent of businesses will not have to register for GST. — Reuters file pic

KUALA LUMPUR, Feb 26 — Compliance will be a challenge in the implementation of the goods and services tax (GST), United Kingdom and Singaporean tax collectors told their counterparts in Malaysia ahead of the introduction of the consumption tax in Malaysia in 2015.

In a forum on GST here, they also listed down difficulties in imposing the tax on digital services, as well as the possibility of fraud, but conceded that GST was an important revenue source for the federal government, and one of the best ways to broaden the tax base.

“It can create a number of definition and boundary issues that would require attention in its implementation,” said Andre Webb, a senior policy manager with the UK’s HM Revenue and Customs.

Webb noted that when the UK began implementing its Value Added Tax (VAT) — its equivalent to the GST — over 30 years ago, it experienced a growing “VAT Gap”.

The “VAT Gap” refers to the difference between the actual and theoretical revenue that the tax would collect in an ideal system.

The gap was mainly caused by cross-border fraud, and periods when some UK citizens did not comply following increasing levels of household debt.

Webb said between £500 million (RM2.7 billion) and £1 billion was lost through fraud in UK in 2011, compared with its VAT revenue of £79.5 billion that year.

A study released in September 2013 showed that around €193 billion (RM870.8 billion) was lost among members of the European Union in 2011 owing to non-compliance or non-collection of VAT or its equivalent.

The UK imposes a VAT of 20 per cent on most goods and services, and a reduced tax of 5 per cent for certain goods.

Companies with revenue of less than £79,000 do not have to register for the consumption tax.

Singapore has a higher revenue threshold of S$1 million (RM2.6 million) and imposes a GST of 7 per cent on almost every item and service.

“We have a filing compliance rate of around 99 per cent,” said Chia-Tern Huey Min, the Deputy Commissioner of International, Investigation and Indirect Taxes Group with the Inland Revenue Authority of Singapore.

This high rate of compliance, said Chia, was a result of the high threshold, necessitating the GST to be collected from a relatively small number of businesses.

It is estimated that only 15 per cent of businesses in Singapore needs to register for the GST, and despite forming only 43.3 per cent of the taxpayer base, they contributed 81.5 per cent of total revenue in 2011.

Overall, more than 80 per cent of GST collections in Singapore was contributed by the higher-income groups and foreigners, Chia said.

The forum today was organised by the Institute of Strategic and International Studies (ISIS) Malaysia, and was attended by key figures from the tax, business and banking industries.

Malaysia will start imposing GST in April 2015, and is expected to reap an extra RM22 billion from its implementation.

With a business turnover threshold of RM500,000, the Royal Malaysian Customs Department estimates that over 80 per cent of businesses will not have to register for GST.

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