GST: Some Pointers and Future Outlook
The shift from the sales and service tax regime to a GST regime is significant and timely given the need to find an alternative and sustainable source of tax revenue.
The challenge to the Government lies in ensuring that the tax is properly administered and that refunds are made on a timely basis to enable the relevant businesses to manage their cash flow. No doubt, there will be numerous questions and issues surrounding the preparation to be GST-compliant, but in the midst of these uncertainties, one thing is certain -- businesses have to comply. For those that are still not ready (and there are bound to be some!), you must review processes and supply chains to identify the incidence of GST at each stage of the supply chain, review contracts and trading terms and ensure appropriate systems and documentation are in place to account for and ensure GST compliance.
A GST implementation exercise involves an analysis of all expenditure and revenue streams arising from various business processes within the supply chain of the business. The incidence of GST has to be identified for each stage of those processes. Contracts and trading terms have to be reviewed for GST implications. Intercompany transactions need to be reviewed to determine the exposure to GST. If intercompany arrangements are exposed to GST, there may be a need to reassess the structure and terms of those arrangements to make them more efficient. It is necessary to understand the incidence of input GST on a business (i.e. is it recoverable or not recoverable) in undertaking a pricing review exercise.
Enterprise information systems have to be reconfigured to incorporate GST modules into the systems. Crucially, accounting and billing systems will have to produce GST reports and tax invoices so as to ensure GST compliance in an accurate and timely manner, especially in view of the penalty provisions for non-compliance under the GST framework. Employees need to be trained on the application of GST on business processes.
In general, GST is not a cost to the business. This is because the GST paid on the business inputs can be claimed (except for exempt goods/services and some blocked inputs) as tax credits against the output tax collected on sales. In other words, businesses can claim the input taxes that they have paid on purchases of intermediate goods and services against the GST charged on the final goods and services that they have managed to sell.
For business organisations, preparing for GST has clearly involved much time and resources across different functions within the organisation. The authorities in turn must continue to improve on the relevant guidelines so as to provide certainty and clarity as well as to keep up with the times.
By having a GST, the tax system will be fairer as everyone who consumes products or services (which are subject to GST) will contribute revenue to the Government. This is in contrast to the other forms of taxes like income tax where some individuals or companies are more likely to seek to avoid or evade the income tax. Furthermore, with the previous Sales Tax and Service Tax, the tax was collected at a single point as it was basically a single stage tax. Thus, if the sellers evade the tax, the Government lost its revenue. GST in contrast, is imposed throughout the production-distribution chain, from manufacturer to wholesaler, from wholesaler to retailers and from retailers to the end consumers and this enables greater control and facilitates more effective auditing and monitoring than a single stage tax would allow.
GST will also improve tax compliance as it will be easier to administer due to its self-policing feature via the tax invoice/documentation that needs to be produced thus making tax audits easier and more efficient. There will be the usual cases of false invoices being generated and this is an area that the tax authorities are aware of and will need to be wary of.
It is suggested that the existing GST law and regulations should continue to be monitored so that it takes into account the changes in business activities and also takes cognisance of developments in the legislation in other developed countries as in the next few years, the need to be in compliance with global GST or VAT guidelines and standards will become important.
Finally, one key decision that ultimately has to be taken will be which branch of the tax administration shall be responsible for the GST. The organisational set-up in most developed countries with a GST suggests that the GST should be closely integrated with the income tax. Where the same officers deal with both taxes, joint audits are the rule. It has been argued that a comparison of both GST and income tax returns, and a comprehensive joint audit, provide the tax officer with a better overall view of the taxpayer's business. In Malaysia, the Royal Customs Department currently administers indirect taxes incuding GST. However, there should be a move to bring about greater integration of the GST and income tax so as to reduce costs, counter evasion activities, etc. It is suggested that over the next few years, Malaysia seriously consider integrating the Inland Revenue Board and the Customs Department so as to achieve greater efficiency and optimum results.