GST could be set for a return in Malaysia just five years after it was abolished in favour of a turnover-based Sales and Services Tax.
It comes after some government ministers and industry bodies suggested it is the only realistic way to reverse diminishing revenues and tackle the growing national debt.
Prime Minister Datuk Seri Anwar Ibrahim last month said his government is “not in a hurry” to oversee the return of GST and has no plans to do so right now, but admitted it remains the most efficient, transparent and robust taxation system.
That came after his predecessor, Ismail Sabri Yaakob, called for the reinstatement of GST last year. He claimed the government had little choice but to return to GST as it had lost about RM20 billion (approximately $4.7 billion) in revenue since removing the tax in 2018.
Former Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz had also revealed that state subsidies had risen to RM80 billion in 2022, significantly up on forecasts of RM31 billion, placing further pressure on Malaysia’s finances.
That has led to reports over recent months that the country is considering the reintroduction of GST; a move that has already been backed by several industry bodies.
In January, the Federation of Malaysian Manufacturers urged the government to include a return of GST in its 2023 Budget, which is due to be presented to parliament on 24th February. The FMM recommended GST is reinstated with a standard rate of 4% and a registration threshold of RM500,000 to provide “a timely lifeline for the country’s debt dilemma”.
It also spoke of the possibility of increasing indirect taxes so that Malaysia could reduce direct taxes.
Other organisations to support the potential reintroduction of GST include the Universiti Teknologi Mara Perlis. Senior Lecturer (Economy) Professor Azman Daim said the tax is the best measure available to the government for reviving and increasing national revenue.
The World Bank’s Lead Economist for Malaysia Dr Apurva Sanghi last week said reimplementing GST is one option, but it could be supported by others such as tax relief within the personal income tax framework and subsidy rationalisation.
Additionally, Bank Islam’s Chief Economist Firdaos Rosli stated GST is the best tool for broadening Malaysia’s tax base to mitigate the fall in government revenue.
What does the potential return of GST mean for businesses and tax professionals?
When the issue of reinstating GST first arose last summer, then Finance Minister Aziz said it would take at least nine months from parliament approving such a bill to the tax being applied to goods and services once more.
As that step has not yet been taken, businesses can be confident of the likelihood that they still have a number of months before they must apply, pay and collect GST again.
But in global tax terms, nine months is not a lot of time.
Global organisations processing millions of transactions each year will require robust systems with immense capacity if they are to be in a position to accurately and reliably determine and apply GST.
Of course, some already have those in place from five years ago when GST was in place across Malaysia but for those that do not, is there anything that you could be doing now?
The answer is yes. Master data is key when it comes to the automation of GST and a review of your customer and suppliers’ names, addresses, contact details and GST registration numbers now will save you having to do that when you need all the resources to get the new tax solution in place.
If you need help with validating your master data the LimeLyte Validation Services solution from Innovate Tax will help you automate the collection and updating of that data.
As we have seen with other newly launched taxes in countries like Saudi Arabia, Oman, Bahrain, and the UAE, Electronic invoicing - widely referred to as e-invoicing - is the exchange of a digital document between a supplier and a buyer. E-invoices are issued, transmitted and received in a structured data format that enabled automatic and electronic processing. They contain data in a machine-readable format so that an AP system can read an invoice without manual data entry, leading to faster and more efficient invoicing. or detailed tax reporting is likely to follow shortly, both of which are designed to root out inaccurate data.
A new tactic we have seen by tax authorities globally looking to raise additional tax revenue is fining non-complaint companies rather than having to raise tax rates even higher. Another area that can be looked at now is to make sure you have split your inventory items/materials into goods and services as the tax treatment can differ between the two.
If your business does not have adequate solutions already integrated with your ERP or you’re concerned that your tax technology will not stand up to the test of GST in 2023, get in touch with us to find out more about how we can help.
As soon as the Malaysian government announces either the reinstatement of GST or that it will not proceed with any possible return of the tax, we’ll have the latest news and insight at innovatetax.com.