25 October 2017
By Raja Kumaran, Head of Indirect Tax, PwC Malaysia
In today’s highly competitive business environment, it cannot be denied that minimising costs has become a top priority for businesses. Indeed, any additional costs incurred can be seen as a burden.
When the Goods and Services Tax (GST) was implemented, the shift in tax burden was set to affect businesses in many ways. While the introduction of GST is an important economic milestone for Malaysia, the hiccups faced by businesses can be costly.
As the Royal Malaysian Customs Department (Customs) is responsible for administrating the nation's GST policy, we believe that they can help to ease the complexities that currently exist.
The frequency of GST reporting depends on the annual turnover of the company. More details can be found on Customs’ official website.
Rather than monthly, we believe a bi-monthly returns preparation frequency would not burden businesses as much. Investment of time into returns preparation would be condensed tremendously.
Also, bi-monthly returns preparation will help improve the cash flow movement of a company, in a way that the suppliers who often offer two to three months of credit terms to their customers, can actually receive payment within two months before forwarding the tax collected to Customs.
Also, the preparation of filing tax returns is very time consuming for chartered accountants/GST consultants, regardless of whether they’re assisting a business in doing so, or if they’re doing it for themselves.
Returns are typically prepared annually, monthly and quarterly depending on the nature of the business. Although Customs have taken the initiative to reduce the time invested in a year to prepare returns from 83 hours to 70 hours, proper compliance with the registration and filing process is still considered challenging.
There is also the short timeframe for the filing of GST returns and the payment of GST to contend with. These must be done by the last day of the month following the taxable period. For example, if the taxable period is April 2015, then the deadline for the filing and payment of GST is 31 May 2015.
It’s important for businesses to be “GST ready”. But for that to happen, the necessary processes and controls must be in place. This must be embedded into the business’ accounting systems, to ensure they don’t spend their revenue on processes that are redundant.
More importantly, they must also display the ability to file GST returns correctly and promptly. This is to avoid penalties, such as fines not exceeding RM50, 000; and/or imprisonment not exceeding 3 years in the event that an incorrect return has been filed.
Penalties are undoubtedly a cost burden for businesses. They are usually imposed when the following offences are committed:
It’s worth highlighting that the penalty rate for outstanding GST is not applied on a case by case basis. This may not seem entirely fair for businesses that are not deliberately tax evading. Outstanding GST is often due to the technical analysis of the law, and is not reflective of malice or intention to break the law.
To further help companies lessen their cost of doing business, a voluntary disclosure option for taxpayers who would like to correct their mistakes should be introduced by Customs. The penalties imposed on businesses that voluntarily disclose any GST shortfalls, and businesses that intentionally evade GST should be differentiated. This could help promote adherence and conformity to the law, especially when the voluntary disclosure option is subject to a penalty rate that is low.
There are also best practices that we can adopt from countries such as New Zealand, Singapore, and Australia – pioneers of GST implementation. For instance, we can look to them for ways in which we can expedite the processing of tax refunds.
Taxpayers, meanwhile, could ensure:
In conclusion, it cannot be denied that GST is a more efficient tax system compared to our previous Sales and Services Tax. In support of our nation’s long term economic growth, a more resilient and sustainable GST application should be endorsed by the Government.
We hope our recommendations above would provide some food for thought to both the authorities and the taxpayers in regards to the issue of reducing the cost of doing business in Malaysia.