This article first appeared in The Edge Malaysia Weekly on April 9, 2018 - April 15, 2018

NOWADAYS, hardly any patron of gourmet coffee places paying RM14.80 for a large cup of latte scrutinises the receipt and laments the 6% Goods and Services Tax (GST). The same can be said about eating out or when purchasing goods online.

Entrepreneurs see GST as part of their day-to-day business operations and are already used to the extra administrative paperwork of preparing and filing GST returns. In fact, business associations in Malaysia say the number of GST-related complaints they receive has dropped significantly in recent times.

Suffice it to say that three years since GST was introduced on April 1, 2015, consumers and businesses have accepted it as a reality.

Economists too concur that the effects of GST have normalised, judging from the increasing amount of money raised from the tax in the last three years.

“The number of companies that are GST-registered has increased to more than 400,000 now. The amount collected has increased over the years, from RM27 billion in 2015 to RM42 billion in 2017. This indirectly indicates that more businesses are GST-compliant while customers are accustomed to the tax,” says MIDF Research chief economist Dr Kamaruddin Mohd Nor.

RHB Research chief Asean economist Peck Boon Soon points out that the trend of private consumption growth — decelerating from 6.4% in 2Q2015 to 4.1% in 3Q2015 before rebounding to 4.9% in 4Q2015 — is proof that the impact of GST was short-lived.

Moreover, the Retail Trade Index — an indicator of consumer spending — has been growing steadily since hitting a low of 2.6% in 3Q2015, also suggesting that consumers have adjusted to GST. In January this year, the index stood at 8.5% compared with 8% in December last year.

Nevertheless, it is puzzling that the Malaysian Institute of Economic Research (MIER) Consumer Sentiment Index still shows that consumer sentiment is weak. The index is below the threshold of 100 points, although it increased to 82.6 points in 4Q2017 from 77.1 points in the preceding quarter.

The lacklustre mood is in line with Retail Group Malaysia’s retail sales growth rate of a mere 2% last year. RGM is expecting this year’s retail sales to be slightly better, growing 4.8%.

It is worth noting that the implementation of GST came when the ringgit crumbled, hitting a shocking 4.29 against the greenback in December 2015 compared with 3.69 in April that year. The currency remained weak for most of 2016 and 2017, at above 4.0 against the US dollar.

This implies that the long-drawn weakness of the ringgit could have had a more prolonged effect on consumer sentiment than GST.

Interestingly, business confidence fared better than consumer sentiment as it was consistently above the 100-point threshold in all four quarters of 2017. By comparison, it averaged 91.1 points in 2016 and 92.47 points in 2015.

Business complaints on GST

Despite businesses becoming accustomed to the new tax, not everything is plain sailing yet. Feedback from business associations and tax consultants reveals that the issue of late refund of GST credit is a persistent problem for the business community.

The Royal Malaysian Customs Department (RMCD) scrutinises and verifies almost all the GST refund claims to prevent fraud. While that is an acceptable measure, Datuk Chua Tia Guan, co-chairman of Pemudah’s Focus Group on Paying Tax, says the business community expects the Customs Department to be quicker in GST refunds now as it should have built complete taxpayer risk profiles, given that three years have passed since the tax was implemented.

“The 14-day refund provision in the GST Act has also created high expectations on the business side, even though the world average for GST refunds is 56 days,” he adds.

The Federation of Malaysian Manufacturers (FMM) says that the delay in GST refunds has adversely affected the cash flow and competitiveness of manufacturers, especially small and medium enterprises (SMEs). The 2H2017 FMM-MIER Business Conditions Survey shows that most companies receive their refunds within one to three months. Only 8% of the respondents received their refunds within the 14-working-day promise for online filing while for 18%, it took an average of three months.

Grant Thornton executive director of indirect tax and GST, Alan Chung, points out that the law provides for instances where the stipulated refund period is not applicable if the director general (DG) reviews the refunds.

The intention, he says, is to allow the DG to review the GST refunds without being subject to the stipulated refund period when something is amiss or abnormal.

“The spirit of this provision should be applied to exceptions. Unfortunately, it is being applied generally to all refunds as the Customs Department is not comfortable enough to automatically refund GST.”

DG of Customs Malaysia Datuk Seri Subromaniam Tholasy admits that late refunds have been a common complaint but he points out that the majority of the refunds — 70% to 75% — are paid out promptly.

“Most of the claims are paid out within three months with some dragged on to four months. There are reasons for that, one of which is that some large companies export using other names — exporting on behalf — so the GST registrant and exporter are different entities, which doesn’t appear on our system. Definitely, the officer would want to make enquiries. It takes time to sort that out,” he explains.

Other complaints include the apparent inaccessibility to Customs officers and inconsistent answers.

“It is really irritating when you call the Customs hotline but no one answers. I’ve tried calling them the whole day but no one picks up the phone. What is the point of having a hotline then?” asks a businessman.

Businesses also comment that branch Customs officers are inconsistent in their answers to their questions on GST.

“At the end of the day, everything that we are unsure about has to be directed to the Customs headquarters for advice. Big companies like us don’t mind paying our consultants to help us get advice but what about the small businesses with no such budget? They end up being conservative and do not claim tax credit that should rightfully be refunded,” observes a local businessman.

Tax consultants also highlight that new businesses with long gestation periods are facing some challenges on the GST front. EY Malaysia indirect tax partner Aaron Bromley says such businesses — especially from the oil and gas, utility and construction sectors — have found it a challenge to recover GST incurred during their start-up process.

“These businesses have come to Malaysia or they are Malaysian and are going to take a few years to start production or build infrastructure and make sales. What Customs is saying is that you need to show that you are going to make taxable supplies within the next 12 months, otherwise you cannot recover the GST until that happens.

“That has been a surprise to many businesses, particularly international businesses. Because elsewhere, they are generally entitled to claim back GST on these costs, so they are surprised when they cannot in Malaysia. And, of course, that GST cost probably hasn’t been built into their financial forecasts,” he explains.

PwC Malaysia executive director and indirect tax head Raja Kumaran says he hopes Customs will exercise some discretion in considering the compliance history of businesses before adopting a blanket approach to such matters.

But Raja believes these issues can be eased with the introduction of the Malaysian GST Compliance Assurance Programme (MyGCAP), and sees it as a positive step for the business community.

Despite the complaints, many believe the implementation of GST has been a success. Chung says both GST collection and the number of registrants have far exceeded original estimates.

Bromley notes that the availability of guides and public rules for the business community is commendable. He hopes to see more dialogues and refinement of tax operations going forward.

Raja hopes that there will be more consultations between Customs, the tax consultants and the business community. “I would like to see a more consultative approach, for instance, where the RMCD wants to change a view or guideline. Then, let’s work together to do it. Consult with the industry concerned and see what impact the change will have and how long it will take to implement the change. Then the updates can be made by both the businesses and RMCD with all the parties being fully aware of the expectations and requirements,” he says.

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