AT the heart of it, what is GST actually about? And how will GST impact business and all stakeholders involved? Aaron Charles Lavell, Partner, WMS Chartered Accountants, during the recent MIA GST Conference 2014, shared some lessons and important advice derived from his experiences with GST.
1 GST MAKES TAXATION MORE EGALITARIAN AND IMPROVES CASH FLOWS
"GST is all about cash flow management," stated Lavell. "Why are so many countries phasing out their existing tax models in favour of GST?
It’s because GST is about cash flow, and cash flow is the lifeblood of any business. GST is "low-hanging fruit" so it is easily picked, and provides quicker returns for governments. Currently, there are about 18 million people in the Malaysian workforce but only about two million are taxpayers. With GST, which is a consumption tax, more consumers will pay for what is consumed, rather than laying the tax burden where it lies now - on the shoulders of the regular tax payers.
2 PRICES WILL RISE - BUT NOT ACROSS THE BOARD
Addressing the fears that GST will lead to an increase in prices and inflation, he added that in every country which has introduced GST, prices have risen. "But some things have actually become cheaper," he pointed out "As an example, in Australia, car sales decreased leading into the introduction of GST because the former sales tax rate was much higher. The government had to introduce other incentives to help the automotive industry so the car manufacturers could survive during that transitional period.” He said the core issues of GST concerned meeting the four basic requirements to come within the rules 一 consideration, supplied by a taxable entity, whether it constituted a part of the business, and whether the supply was made in Malaysia.
3 FOCUS ON SUPPLIES, INPUTS AND CONSIDERATION
The three types of supplies which were also of immediate concern were exempt, standard-rated and zero-rated supplies. "Your focus should be on supplies, inputs and consideration," he said, “but don't ignore market forces.’’ He assured the audience, however, that for typical taxpayers making standard taxable supplies, GST was primarily a cash flow issue. "In fact, zero-rated suppliers and larger retailers could probably find GST to their advantage," he remarked. "It is the exempt suppliers who may generally find themselves at a disadvantage.” He said that invoicing at certain times during the stipulated or relevant period can actually be quite beneficial, but this will depend on whether one was supplying or purchasing. 'Your focus should be on supplies, inputs and consideration, "but don't ignore market forces.
4 timing and documentation are material
Where procurement was concerned, some items will stay GST-free for five years. Contracts will need to state if goods or services provided are subject to GST or not "But be careful of big- ticket items, ‘’he cautioned "You may want to order big-ticket inputs towards the end of a reporting period. For hire purchase items, you can claim GST straightaway. For leased items you should claim it progressively. Documentation, he reiterated, is imperative. “Document sales tax very carefully, or you will lose it," he advised. “If you don't document properly, you may lose the right to claim it, which could be a loss for the business, ultimately. Follow the guidelines closely. And remember - accountants are supposed to help you get GST right, not avoid it!”
5 HR PERSPECTIVE ON GST
From the perspective of human resources, the focus should be on employment costs, he continued. “Goods and services provided as part of t employment agreements are outside GST,” he said. “Most employee benefits are blocked from input tax credits. If you pay in cash, there's no GST to claim back.
6 GST AFFECTS VENDORS AND CUSTOMERS
"You should also be aware of the GST status of your subcontractors,” said Lavell. Acknowledging that one of the main concerns of most businesses was that implementation of GST will affect the price of goods and services, he offered some practical advice, such as reviewing the basic taxing point, and ensuring that invoices were issued within 21 days of this point Other elements that need to be reviewed include rebates and incentives, and any existing contra arrangements, consignments and warranty claims“ If you have contracts or agreements which are in existence before 1 April 2013, and which will span the period during which GST becomes effective, they should be reviewed," he said. 'Talk to your customers, and ask if they will allow you to charge GST”
7 GST IMPACTS FINANCE TOO
From the finance perspective, he continued, firms should ready themselves by determining if they will need a GST overdraft working capital facility. The question of whether hire purchase facilities or operating leases should be used for cape funding has to be discussed, and the company should decide whether its credit terms need to be reviewed. With the extensive documentation required, the necessity of having an information system which could handle these demands will develop in parallel, he said.
8 EMBED INTERNAL CONTROLS
Many SMEs may even be installing computerised systems for the first time so the appropriate internal controls will have to be put in place. Some of the controls that will have to be determined are how the percentage of taxable supplies can be monitored to comply with Customs requirements, if a company is dealing in mixed supplies, and how to monitor bad debts, as well as compliance with all record-keeping requirements. "Your key focus should be on updating your cash flow, and who is authorized to spend within the company "Lavell ‘’suggested. "The main pitfalls may actually lie in not being able to take advantage of the allowances, entitlements or special schemes which the government has put in place, out of sheer laziness or ignorance.”
9 RIDE ON INCENTIVES
Recognising that certain sectors of the economy will definitely feel the pinch with the implementation of GST, the government has introduced special schemes to ease their burden. "Take advantage of these concessions," he urged. "If companies choose not to register, they should be cheaper. But be careful of compliance. Use peer reviews; share information and knowledge, and keep abreast of developments at all times."
SOURCE : MIA ACCOUNTANTS TODAY, SEPT|OCT 2014