Whilst there has been increasing speculation on the possible announcement by the Government on the implementation of Goods & Services Tax (GST) in Malaysia in year 2015, it is crucial for Malaysian businesses to plan ahead and get ready for GST. Here are 5 challenges your business will face if you are not GST ready:
Regardless of the size of your company, the law imposes the same compliance obligations on Goods & Services Tax (GST) once the registration threshold of RM500,000 of annual turnover is reached. Whilst businesses are essentially just collecting and remitting GST for the Government non-compliance will result in penalties on the business itself.
Goods & Services Tax (GST) imposes additional compliance work for businesses. Without adequate knowledge on GST Malaysia, your existing team may not be able to efficiently handle the initial work such as upgrading the accounting and recording system as well as additional work to account for the tax, tracking of the input taxes paid, undertaking reconciliations and filings of GST returns.
Businesses needs to be aware on the potential cashflow implications of Goods & Services Tax (GST) and may need to restructure their cashflow so as to prevent having cashflow problem once GST is implemented. In circumstances where businesses pays cash or has short credit periods from its suppliers, this may result in the business needing extra finances to purchase supplies when GST is first introduced. Similarly, businesses need to charge GST on sales, so if the customers are late in paying due to credit terms, the businesses will have to pay the tax first.
Customers usually react to news of discounts or price increases. The general perception is that Goods & Services Tax (GST) will result in a price hike on certain goods. Experiences in other countries such as Australia, Singapore and Thailand have shown that customers generally go on a shopping spree shortly before the introduction of the tax, followed by a period of relative inactivity after the tax is introduced. If your business directly deals with consumers, it may be necessary to do some stock planning to cater for a pre-GST rush.
If you are planning to invest in business assets such as plant and machinery which may have embedded sales tax in them, it may be worthwhile to purchase such items after GST is implemented. This is because buying the same goods after GST would allow businesses to claim as input tax for GST whereas under the current regime the embedded sales tax is not deductible or creditable. However, this requires some assumption that prices will otherwise remain static.
For some business that fall below the registration threshold, on the surface it may appear a good thing that the business is not subject to the compliance burden of the tax. However, unless the business is licensed, it would not be entitled to claim the input tax credits on purchases.
This leads to input tax paid being a cost to the business and this cost may be passed on to the consumer in terms of higher prices. However, in a situation where the customers of the business are other GST registered businesses, the supplier may be obligated to license itself as it is likely that the customer would insist on buying from another registered person to enable him to claim the input tax credit.
In order to be have a smoother transition into GST, businesses should start getting ready now. Here are 6 ways we can help you:
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