Trust Bloomberg Tax's Premier International Tax offering for the news and guidance to navigate the complex tax treaty networks and business regulations.
By Lien Hoang
Malaysia’s consumption tax will officially drop to zero next month, quickly fulfilling the new government’s campaign pledge but pushing businesses into a last-minute scramble to swap out shop displays and tax software.
Repeal of the 6 percent goods and services tax June 1 is expected to lower prices across sectors, especially retail, a market in which customers most clearly see tax bills passed on to them.
However, this move will pave the way for a comeback for the sales and service tax (SST) from three years ago. If the reincarnated SST is 10 percent, as in its past life, costs could rise for the manufactured products that are covered, like vehicles, and for services like consulting and engineering.
The Finance Ministry’s May 16 decision to remove GST has given companies about two weeks to transition. Kularaj Kulathungam, managing director of KR Tax Consultants Sdn Bhd, fears that some taxpayers will exploit the transition period for profiteering.
“My bigger concern is that there could be recipients of goods and services who may pressure suppliers to not issue tax invoices until after June 1 so as not to incur GST at six percent,” Kularaj told Bloomberg Tax. “Or, there could be suppliers who do not lower the price of goods as a result of the removal of GST at six percent.”
The government probably “will be closely monitoring businesses and retail outlets to ensure that the prices of goods and services are revised accordingly, in view of the reduction of the GST rate,” Baker McKenzie affiliate Wong & Partners said in a client alert.
Officials from the newly-installed Pakatan Harapan, the first opposition party ever to win a Malaysian election, didn’t fully snuff out the GST system. Within days of taking office this month, party leaders announced a stopgap measure to reduce the levy to zero, as promised on the campaign trail.
Yet few believe that a sales and service tax alone, with its more limited scope, will suffice in the face of Malaysia’s persistent fiscal deficits.
“Ideally, a hybrid tax system of SST and GST which addresses the cascading effect of the old SST regime would be the best tax avenue to replace GST,” Ivy Ling Yieng Ping, associate at law firm Lee Hishammuddin Allen & Gledhill, told Bloomberg Tax.
The finance ministry offered assurances it would trim spending and raise funds through oil revenues.
“Expenditure reduction will begin with rationalization, efficiency measures, and reduction in wastages,” it said in a press release on abolishing GST. “Of significance, oil prices have been higher than the $52 per barrel estimated for budget 2018. This provides fiscal buffers for the immediate future.”
The ministry didn’t specify where it might cut costs. Robert Teo Keng Tuan, managing partner of RSM Malaysia, said the government could prevent “widespread leakage” by deferring some large procurement contracts and making their tenders more transparent. It also could save money by shrinking the bureaucracy, he said. During the campaign, then-Prime Minister Najib Razak offered higher pay for civil servants if re-elected.
Once the sales and service tax returns, Ping predicts it will mostly affect service industries, from restaurants and night-clubs, to legal and accounting firms. However, she said in the meantime, the most visible impact will be on retail stores.
“The retailers are the ones who need to make the biggest changes, as all their displayed prices need to be reduced to reflect the reduction of the GST rate,” she said.
Kularaj reminded taxpayers they still need to keep tax files, even with GST at zero.
“We foresee that there may be some practical accounting or transaction-related issues for many GST registrants,” he said. “There could also be administrative issues, as some GST accounting software may not be flexible with changes to tax rates and tax coding for transaction recording.”
To contact the reporter on this story: Lien Hoang in Ho Chi Minh City at email@example.com
To contact the editor responsible for this story: Penny Sukhraj at firstname.lastname@example.org
Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)