A year has passed since the implementation of Goods and Services Tax (GST) in Malaysia and how far the SMEs have fared? There are still lots of questions lingering around the business sector and the consumers as well; some are answered and others remain vague as claim by certain concerned group.
Advises have been flying around by our Ministers, the Royal Malaysian Customs (RMC), and various GST consultants together with software providers but is it easily understandable or will there be more confusion arises? I believe everyone is still in learning stage since the RMC has also revised certain GST Guides such as Guide on Land and Property Development, Guide on Construction Industry, Guide on Manufacturing, Guide on Islamic Banking, and etc in the beginning of 2016 to provide a better guidance specifically. (to login for more Industry Guides, click here)
So, the question is whether are you aware of this?
THE BURNING QUESTIONS
Different industries are facing different issues pertaining to GST. It is incorrect to compare property development industry to construction industry. Likewise, not all commercial accountants are well experienced covering all industries. Similarly for accounting software as specific industry requires custom-made software such as SAP, ERP and etc. These are monthly fixed cost where the business operator needs to incur if it is cloud based software.
Thus the questions come into mind pertaining the accountant and software:
a) Are chartered accountants more preferable?
b) Is the monthly cost a burden to the SMEs?
c) How reliable is the accounting software in terms of maintenance and sustainability?
d) What is the better choice for your company?
Most, if not all SMEs are looking for an answer to this. I believe the answer still lies on sustainability. A well experienced commercial accountant can cost a fortune to small SMEs likewise cloud based accounting software may not be suitable for small to medium traders. However, it will be risky for the SMEs to rely on an inexperienced commercial accountant with little knowledge on GST or the accounting software which the SMEs do not even know how to use in the first place.
Shared Services Outsourcing (SSO) is one of the solutions for all these where SMEs can move on quickly without hesitation and still can view the cost reduction as a top priority thus cutting unnecessary cost in hiring commercial accountant and acquiring sophisticated accounting software. Pro B Centre, a MSC certified status company offers SSO to all growing SMEs to fill up empty holes where the SMEs are lacking in operations and admin thus letting the SMEs focus on the most important task which is profit maximizing; sales and business development.
Chartered accountants together with Tax and GST consultant’s services are the most highly sought after through outsourcing since the GST implementation as they can cover various industries. A GST consultant is capable to help SMEs on various GST issues such as GST-03 review, GST Planning, GST Audit and GST Training to specific industry.
ARE YOU AT RISK?
Every business operator must know the risk and the implications. Detailed penalties have been stipulated clearly in the GST Act and business operators should have a copy with them as a reference. One of the simple actions which a business operator must do is to keep proper storage of GST records and files.
As stipulated in GST Act Section 36, one shall keep full, complete and true records up to date of all transactions which affects or may affect the liability to tax and shall preserved for a period of seven years in National or English language and kept in Malaysia unless approved by RMC. It must be readily accessible and failure to comply shall be liable to a fine not exceeding RM50,000 or to imprisonment for a term not exceeding three years or both.
A reliable and sustainable accounting system are required to generate necessary GST data especially GAF files to be access by RMC in the event of Customs GST Audit.
GST Planning for better Cash Flow Management and better management
The impact of GST has given some bad thoughts to certain SMEs when traders are being burdened heavily leading them to discontinue their business due to heavy administration and financial work. Do you still remember 21 days rule and bad debt adjustment?
These are the principles where the SMEs shall understand the concept and how it should applies in their daily business operations. Cash is an important aspect for liquidity and a better understanding on how GST may affect the SMEs cash flow is utmost important. Better planning on the GST submission from the issuance of invoice is the best solution. Different invoice/billing date applied may change the period of taxation. This may be one of the taboos but if put to good use; it can save you some time to recoup from your disastrous cash flow mismanagement.
During the recent GST conference conducted by RMC, one of the officer reminded that it is advisable for the business operators to write to RMC notifying them that they would not want to claim back the input tax caused by their bad debtors under the bad debt adjustment Section 58. Currently there shall be no penalty for failure to notify the RMC however, it is advisable to make it a habit to avoid any possible penalty in the event there is a revised decision.
GST Planning services offered by our Cheng & Co is advisable for those SMEs who are weak in their financial management. It is tailored to strengthen the fundamentals of the company’s financial structure related to GST management and rectify any shortcomings on the flow.
Audit and Penalty
Shortly after 6 months of the GST implementation, RMC has been actively going down to the ground monitoring and inspecting stubborn business operators who are breaching the Anti-Profiteering Act and GST Act especially on unreasonable hike of pricing, failure to provide Tax Invoices, failure to provide GST statement, etc. There was a recent news in April 2016 where a petrol station owner was fined by the Sessions Court in Shah Alam to an amount of RM25,000 due to the failure in providing GST statements in 2015. Similarly in Melaka, a couple was fined for failure to provide Tax Invoices.
Compliance and education are necessary to avoid any penalty. Without proper education and awareness, SMEs are posing themselves to risk. It is a learning curve to the SMEs for better managing their own business without letting GST affecting their daily operations. However, SMEs may still feel that their lack of resources is the cause of the company’s inefficiency in handling GST administration works. Such issues are mostly linked to lack of focus on administration and finance part, and difficulty in hiring an experienced commercial accountant to handle their accounts.
With the current economic remains quite stagnant and instability of Ringgit Malaysia effecting retrenchment in certain industry, worries are slowly building up effecting consumer spending. Distribution of jobs ought to be the main focus in order to return the confidence to people thus strengthening the economy and helping SMEs achieve higher GDP growth rate.
Lowering tax rates are a good move and according to Arthur Laffer, cutting taxes can result in government collecting more, not less money. According to Laffer curve, if taxes are set too high it will discourage the consumer to spend less and pay lesser tax thus the revenue declines. But if the taxes are lowered it will encourage the consumer to earn more and spend more. It will even encourage spending on luxury items.
As more business operators who find it hard to survive financially after GST implementation, it will be much encouraging if the GST tax rate be lowered to a comfortable rate whilst encouraging consumer spending as well.
Overall, everyone is advisable to remain positive although global economy seems quite flat for Malaysia has proven time and time again that we can brace through tough challenges and still remain a strong nation.