Goods and Services Tax has been enforced one year since its implementation on 1 April 2015. In the early stages of the transitional period in implementation of GST, the Royal Malaysian Customs Department (RMCD) encountered many challenges. Nevertheless, GST regime is now smooth and fairly well accepted by businessmen and people. In early May 2016, RMCD with ultimate responsibility for the introduction & enforcement of GST in Malaysia has won the award of Asia Tax Commissioner at International Tax Review’s Asia Tax Awards.
The RMCD has successfully achieved the following in the nine months period from 1 April 2015 to 31 December 2015:
1. Approximately 400,000 companies have registered for GST as at end of 2015.
2. GST collection exceeded the initial target of RM27billion.
3. Reduction of complaints from traders and consumers.
As its first anniversary, it is clear that Malaysian government implemented GST in the right time, and it was never meant to burden people but it has saved the Malaysian economy from the plummeting oil prices and shrinking Malaysian currency. With the GST in force, Malaysia is still able to retain all the civil servants and did not terminate the services of any civil servants including those appointed on contract, and still able to retain some subsidies to the civilian. GST is the savior of the Malaysian.
Despite the above mentioned accomplishment GST, both RMCD and businessmen are currently resolving the main challenges in respect of input tax credit refund and business operation model.
Input tax credit refund
Based on the GST Regulations 2014, input tax credit refunds should be made within 14 days after submission of the return by electronic service to RMCD. However, RMCD has managed to refund on average 70% of GST refund on time.
In many refund cases, RMCD requires further information for the verification procedures and it often lengthens the processing time of the GST refund. Companies which are in the refund position for more than 2 conservative taxable periods would have high chances of receiving a verification notice prior to the approval of GST refund. In view of this, RMCD shall expedite the verification process and companies shall provide full co-operation in order to achieve 100% GST refund on time.
Business operation model
General, all GST registered person who makes taxable supply of goods and services is required to issue a tax invoice. Credit notes and debit notes are issued by the supplier when the value for a supply is reduced or increased after a tax invoice has been issued. Supply for GST purposes covers all forms of supply where goods and services are supplied in return for a consideration. This is affecting the companies, which are practicing purchase on behalf, payment on behalf, etc. as they now must issue legal documentation to the recipients.
Besides that, GST implementation also affected Multi-National Companies (MNC) who carry out manufacturing and trading in Malaysia. Many MNC are making taxable supply in Malaysia through the agent model and they are required to register and charge GST if the supplies exceed RM500,000. Most MNC are reluctant to register for GST due to the additional compliance and administration cost. Therefore, some MNC attempt to re-structure their operation model to ensure compliance with the Malaysian GST requirement at minimal additional costs.
In Malaysia, GST regime is still at its infant stage. As such, there are rooms for improvement and all Malaysian shall move forward together hand in hand for a better GST regime in the future!