This article first appeared in The Edge Malaysia Weekly, on March 28 - April 3, 2016.
MANY would agree that the implementation of the Goods and Services Tax (GST) in Malaysia has gone fairly well in its inaugural year. Statistics show that the number of businesses (400,000) registered for GST have far exceeded expectations while the amount of GST collected for 2015 went beyond the targeted RM27 billion.
Nevertheless, like any new tax system, teething problems certainly abound. While GST is known as a business friendly tax because it allows businesses to recover its input tax, many have found its implementation to be a pain.
Tax consultants share that there have been many instances when the director-general’s decisions on certain issues were not consistent with the Goods and Services Tax Act, causing confusion and uncertainty.
“The DG’s decisions are public. Then, there is the GST Act, which is what binds you. If there is a dispute between what the DG says and what the law says, unless you are 100% comfortable with what the DG is saying, you will choose the law. If you cannot comply with the law, then you’ve got a problem. Should Customs choose to penalise you for not following the law, you might end up having to defend yourself in court,” says PricewaterhouseCoopers Tax Services Sdn Bhd managing consultant Tim Simpson.
Taxand Malaysia Sdn Bhd managing director Renuka Bhupalan does not deny that the Customs officers have been helpful in taking enquiries via phone calls or at meetings. But she notes that sometimes, their hands had been tied due to uncertainty in interpreting the law or in how the law should be implemented from a practical perspective.
The uncertainty in interpretation among the Customs officers themselves seem to have added to the confusion. The call centre and Customs head office have given varying replies to queries.
However, Royal Malaysian Customs Department deputy director-general Datuk Subromaniam Tholasy, who is in charge of GST, defends his staff, saying that they are generally well trained.
“I’ve got a good team of senior Customs officers who have been with me since the beginning of the GST process. Generally, all of my staff can reply to most questions but with more complicated issues, they would bring it up to the head office. I guess the issue that I am facing now is that a few senior custom officers are retiring soon,” he says.
Elsewhere, tax consultants lament that the GST process requires businesses to acquire too many approvals, which slows down business processes and increases the cost of doing business.
PWC executive director Raja Kumaran opines that the Customs department could probably rethink the approval process going forward. “We are going towards a developed economy. So, businesses should be given the leeway to do self-policing and given clear guidelines or instructions for it,” he says.
After all, he adds, there is the audit process that provides an avenue for Customs to take action against businesses that are non-compliant. “In any tax system, there will be deviants. But don’t let them dictate how the others run their businesses,” he suggests.
Meanwhile, some businesses continue to gripe about the one key issue that has dominated headlines since GST’s implementation — input tax refunds.
Accounting firm Grant Thornton executive director Alan Chung says some of his clients continue to struggle with cash flow due to delays in obtaining input tax refunds. He says that GST was not intended to be a cost to businesses because of the availability of input tax refunds, but it became a cost for those who were buying a lot of imported materials as they had to pay import GST before the goods were physically obtained.
The Customs department, however, insists that the rate of providing refunds has improved since April last year. Statistics show that the refund rate within the promised 14-day timeframe had increased from 17% initially to 70% in November.
While that may be the case, tax consultants say the statistics should also show the value of the refund in each case, not just the number of cases refunded.
“For example, 90% of people have returns of RM100 and 10% have returns of RM5,000. You can still say it’s 90% refunded but you’re not talking about the money, the huge amounts of money that’s not being returned,” says a tax consultant who declines to be named.
However, he concedes that the relationship between the Customs department and businesses should be a two-way street. He adds that sometimes, businesses themselves should take the blame for late refunds because they had not furnished the additional information required by the Customs department.