GST zeroing in on the pricing issue

KUALA LUMPUR, 1 October 2014 -Businesses are grappling to make sense of the issues surrounding GST implementation with 1 April 2015 a mere 180 days away. While it is encouraging to note that some organisations have started to assess GST’s impact on their business models and operations, there are still plenty of ambiguities relating to costs of compliance and the effect of GST on liquidity.

The Royal Malaysian Customs has taken the necessary steps to provide guidelines and parameters to ease the transition to GST. However, there are still certain gaps (transitional issues) that need to be addressed.

The key issues include identifying which products fall under the GST ambit, how to avoid double taxation for stock that is still on hand on 31 March 2015, and how to treat products which are billed in advanced.

Businesses need to ensure that they charge the correct tax to goods and services. However, one of the key challenges is determining which products are 6% and which products are 0%, for instance in the case of rice flour which will have no GST imposed on it (zero-rate) while corn flour will be subject to GST at 6% (standard rate).

To eliminate double taxation, the government has announced that sales tax will be returned for stock on hand (inventory) as of 31 March 2015. As many businesses operate on credit terms, it is not certain whether they will need to pay the supplier for such products by this date in order to qualify for the refund.

In the case of invoices, businesses need to be assured that they can charge GST for goods and services provided after 1 April 2015. This poses a challenge for businesses that issue invoices in advance, as GST can only be imposed after 1 April 2015.

The government recently gazetted amendments to the Price Control and Anti-Profiteering Act 2011 as a means to penalise businesses that make “unreasonably high profits” from GST collection. While this is a positive first step to curb opportunistic price increases, it is necessary for the government to clearly articulate how this legislation can effectively address the needs of multiple stakeholders at every stage of the supply chain (from the supplier, manufacturer, distributor and retailer right to the end consumer) . Similarly, the mechanics of the proposed “Shopper’s Guide” should be clearly communicated in the months leading up to its implementation in January 2015.

“Many of these uncertainties stem from a perception issue. Many companies still do not fully understand how the GST regime works, viewing it as a compliance exercise instead of a progressive tax that will benefit them as they move up the value chain in the long run,” said Hanita Ahmad, executive director of PwC Taxation Services Malaysia.

“It is critical for businesses to properly understand the mechanics of GST as it has wider implications on the economy and the wellbeing of the rakyat. As this is a new tax, it is hoped that the government will exercise discretion by not penalising businesses for unintended errors during the first two years of implementation. Now is the opportunity for the government and the authorities to proactively engage with businesses to find out where their challenges are and how they can work together to ensure a smooth implementation of GST,” she continued.

ENDS