It is just days away before 1st April 2015, when GST will come into force. The uncertainty and confusion surrounding the Rakyat is certainly worrying. The impact of GST on their businesses will nonetheless vary depending on the scale in terms of their business structure as well as industry. There are the people who view those prices of goods and services will drop. To the contrary, majorities are of the view that prices will increase. In theory and under a perfect market situation, certain prices of goods should be reduced due to the abolition of Sales tax which is currently levied at 10%, and the mechanism of claiming back the Input GST would certainly reduce the cost, which result in passing the cost savings down the supply chain under the new GST regime. Currently, with the Sales and Services Tax (SST) system, all sales and services taxes paid are not claimable and not only these taxes become a cost to the businesses but have a cascading effect. Once GST system kicks in, any costs related to businesses would be claimable as input tax and entrepreneurs would be able to save additional costs in this way.
Conversely, the perfect market hypothesis may not work not because of the mechanics of the GST tax system but other economic and social factors experienced within Malaysia. Examples are the Minimum Wage policy which was just implemented by the government thereby increasing the cost of goods; the increase in electricity tariff which would drastically increase the manufacturers’ production costs; the current Ringgit depreciation which results in more expensive imported items that to a certain extent, contribute to further price increases.
Another reason why prices will not reduce in tandem even thought businesses are reaping the benefits of cost saving under the GST system with the claim for input GST, is due to the Pricing Policy of the entrepreneurs. The government has since taken cognisance that the Rakyat is unable to perceive any price reduction despite fuel prices coming down in recent months as manufacturers have indicated that their transportation costs are only a small fraction of their overall production costs, hence should not warrant any price reduction. Another reason why businesses may not want to reduce prices is because it will be difficult to increase prices thereafter. Instead they would prefer to give promotional items in lieu of price reduction. Furthermore, the recent Price Control and Anti-Profiteering Act (Amendment) 2014 implemented by the government would be a hassle if there is subsequent increase in prices.
There it goes! However, I would like to highlight some pertinent issues that require fastidious attention from the Royal Malaysian Customs.
Private medical practitioners
There was uncertainty arising from private doctors and specialists who rendered their services to their respective hospitals. It was earlier stated these services are exempted from GST. As it stands now, these services are now subject to GST. Since the provision of medical services by hospitals is exempted from GST, the GST incurred on its outsourced service i.e. provision of services from specialists – the input tax credit paid cannot be claimed. Ultimately, the GST paid will be absorbed as part of their business costs. Consequently, in order to maintain their profit margin of these exempt supplies, the medical practitioners will have no choice but to increase the prices of their goods and services.
Article provide by Dato’ Raymond Liew.
Dato’ Raymond Liew:
He is a Chartered Accountant, holds a Master degree from Henley Management College, United Kingdom, a corporate advisor with many years of extensive work experience with professional firms and multi-national companies in brand repositioning, corporate advisory, insolvency, Mergers & Acquisitions to include corporate tax planning, investigative reviews and VAT/GST related exercises; and has since assisted in numerous corporate turnarounds and related due diligence corporate exercises.
He is the President of McMillan Woods Global, an independent member firm of McMillan Woods Global network of which the global Head Office is based in London, United Kingdom.