Implementing GST-compliant IT system will be chaotic

Published: Tuesday March 4, 2014 MYT 3:30:00 PM 

Updated: Tuesday March 4, 2014 MYT 3:41:41 PM

iContro Software CEO Frank Lee predicts the majority of Malaysian manufacturers
will find their ERP system too old to be upgraded to be GST-compliant
and there will be a mad scramble to overhaul their systems.

KUALA LUMPUR: iContro Software Sdn Bhd, the local Enterprise Resource Planning (ERP) software specialist, predicts that businesses, especially in the manufacturing sector, will experience a “chaotic period” in trying to replace their legacy IT systems with GST-compliant ones.

“When it finally dawns upon the majority of Malaysian manufacturers that their ERP system are simply too old to be upgraded to be GST-compliant, there will be a mad scramble by the top management to put ERP overhaul as the priority of their IT budgets,” CEO Frank Lee warned.

He pointed out that Deloitte Malaysia had estimated that less than 5% of businesses had started getting themselves ready.

Lee thinks problems within the local manufacturing scene may crop up as early as the first quarter of 2014, and continue till the implementation deadline of the GST on April 1, 2015.

ERP software – which integrates all facets of an operation, including product planning, development, manufacturing processes, sales and marketing – needs to comply with the requirement of the GST when it goes into effect.

However, the introduction of GST is expected to be complicated for Malaysia’s manufacturing sector because the ERP system will need to accurately identify and capture the tax imposed or items exempted at the various raw material processing stages of goods being manufactured.

“Currently we know of (just) over 270 items that will be exempted from GST, and this does not include the various state, zone or incentive tax inclusions or exemption that apply to specific manufacturing businesses operating in Malaysia,” Lee said.

“With no prior experience or local business knowledge in implementing a GST-compliant system for a core IT systems as massive as the ERP, many foreign IT brands will find it challenging to support their manufacturers customers,” he added.

According to Lee, Australia – which adopted the GST six years after Singapore – emulated the island state’s implementation. And despite Australia having a much more organised business culture compared to Malaysia, it took the Australians almost three years to arrive at a stable, workable model.

“This is why Malaysian businesses, especially those in the manufacturing sector that have the gigantic ERP that is heavily ‘system-affected’ by GST, need to wake up now to the enormous work at hand.

"The best advice is to start making crucial decisions on your ERP system now,” Lee advised.