Backing for higher GST threshold, but expert warns Putrajaya will lose revenue

Malaysian manufacturers have backed a proposal for Putrajaya to increase the threshold of the Goods and Services Tax (GST) to RM1 million from RM500,000, but a tax expert has warned that doing so would defeat its objective of increasing government revenue.

Federation of Malaysian Manufacturers (FMM) chairman Datuk Saw Choo Boon said that the threshold of RM500,000 was very small for businesses, owing to inflation and the rising cost of goods.

"The amount is very small and complying with the GST is actually very complicated. The process is not that simple and a lot of work is involved," he told The Malaysian Insider of the tax that will be implemented on April 1.

Saw said that the process to register and file the GST would be burdensome for small entities or businesses and the added work would only increase their operational costs.

"There is so much unnecessary work involved, especially if you are a small business.

"So I think it is a very good suggestion for the government to consider because of the complexity involved," he added.

Kluang MP, Liew Chin Tong, had yesterday urged Putrajaya to consider revising the GST threshold to RM1 million instead of RM500,000 or risk seeing smaller businesses struggle because of the administrative burdens and hefty fines imposed as a result of delayed registration.

The DAP lawmaker had said it was unfair to expect all businesses with daily transactions exceeding RM1,600 to register for GST implementation as required by law because of the huge amount of paperwork involved, retraining of employees, and the cost of updating and upgrading software.

Small businesses also could not be expected to pay tax consultants to assist them through the transition, he had added.

"I would argue that the implementation of GST hurts small traders and businesses, as the RM500,000 annual transaction threshold is just way too low," he had said.

The deadline for registration passed on December 31, 2014, and failure to register results in a notice to register within 14 days or a penalty and automatic registration, as stated under the Goods and Services Tax 2014.

According to a Bernama report yesterday, a total of 306,552 companies had already registered for the GST while another 50,000 had yet to do so.

This was based on the Inland Revenue Board's database, Deputy Finance Minister Datuk Ahmad Maslan had said, adding that companies would be fined a minimum of RM2,000 for missing the compulsory registration deadline.

"If you do not want to register, we will register for you and a maximum of RM15,000 will be compounded," Bernama quoted him as saying.

Liew said many businesses might have a sizeable number of transactions but it did not mean they made a huge profit from it.

"It should be clear that transactions do not necessarily translate into income," he said.

However, chairman of tax consultancy Taxand Malaysia, Dr Veerinderjeet Singh, argued that the federal government would not be able to generate adequate income from the GST if the threshold is increased.

He told The Malaysian Insider that this would only defeat the purpose of the implementation of the GST in the first place, pointing out that only countries with high income could afford to have higher thresholds for their taxes.

"Singapore's is S$1 million. They have a lot more traders who are making good profits, high turnovers because it is a developed nation. Their economy has moved and is in a much better position.

"You have to look at the type of economy, the type of state of development, the structure of an economy before you even talk about changing thresholds," he added.

The tax expert also pointed out that another reason for implementing the GST was tax compliance; to ensure that small businesses do not get away with tax evasion.

"The GST was meant to be one of the ways to surface this kind of resistance in avoiding to pay other taxes. Now, when the GST comes in, if their turnover is high, they have to register and that means they have to start filing GST returns.

"This will also bring them out for purposes of tax," he added.

Singapore, on the other hand, records high compliance as far as income tax was concerned, Veerinderjeet said, as it was well-monitored. As such, a high threshold rate for GST was feasible for the island republic.

"But we have a different state of economy. The majority of our businesses are small medium enterprises (SMEs) and smaller businesses," he said.

"If you pull all of them out, who are we left with? We are only left with all the listed companies, all the GLCs (government-linked companies) and the big players."

Weighing all these factors, including the state of Malaysia's economy, Veerinderjeet said that a threshold of RM500,000 was reasonable.

"In the early days, we were even thinking about using RM250,000 as the threshold but that was a bit too low. In the end, we agreed on RM500,000," he added. – January 25, 2015