8/2015 – GST – Show me the money, show us our money
by Tan Thiam Hock
Saturday, 25 April 2015
WHY am I not surprised that the furore of the goods and services tax (GST) debate has now moved to the service tax? GST is a new tax. Service tax has been around for umpteen years and never disputed as consumers have a choice.
GST is a compulsory consumption tax and you have no choice but to pay as you consume.
Maybe it is just a convenient ploy by the politicians to shift the commotion away from GST to another debatable issue.
Trust me, GST is here to stay and so will the service tax. So why cry over spilt milk and all of us just moved on and accept that the cost of living has just gone up across the board.
We should be happy that the Government is able to increase its revenue base to sustain its daily operating cost and not go bankrupt like the Greek government.
Now we only have to worry about how the Government is going to spend this new found wealth.
Historically, GST or VAT (value-added tax) has been increasing through the years in many countries. Singapore started at 3% some 11 years back and is now at 7%. Most part of Europe carries a VAT of 20%, now a very important source of revenue for their respective governments.
So, do expect our Government to continue broadening this tax base in the coming years. First by removing the exemption from the long list of exempted products and then when they are not able to balance their budgets again, to raise the percentage on a gradual basis.
This is not a prediction. Since VAT started in France in 1955, VAT rates have not been affected by gravity and like salaries will continue to go up.
The question will be which rate goes up faster?
We know now how GST affects the consumers in their daily lives. How will it impact the business community? Only time will tell the true impact but I would like to predict some scenarios for you to ponder.
For businesses with an annual turnover of less than RM500,000, you do not have to register for GST. Similarly, you are not authorised to charged GST.
But your suppliers who are GST compliant will charge GST with their supplies. Your cost have just gone up by 6% and there is no way you can pass this to your customers other than raising your prices to your customers.
The plus side is you neither have to hire additional accounting staff nor spend money on new software. Yip..pee.
It gets more interesting when you are authorised to collect GST on behalf of our Royal Customs. You will have a new source of cashflow – additional 6% assuming you can collect cash or early payment before you pay the Customs. Yay.
You can now reduce the interest cost on your overdrawn account. Just do not spend this temporary additional cashflow elsewhere or invest in capital expenditure. It is not your money. It belongs to the Government.
But if your business is cash strapped, what will you do with the additional cashflow collected? Pay first to the Employees Provident Fund, Inland Revenue or to Customs?
My advice is to pay to all three or you will go straight to jail. Which means you hold back paying salaries which will cause a riot among your workers, which will cause your business to shut down. Either way you lose. Might as well pack your bags and run like hell … to anywhere.
Malaysia’s trading environment is unfortunately well known for its long credit terms. In some businesses, it is normal to extend credit terms of 60 days but getting paid anywhere between 90 to 180 days. Your customers consider you as a valued trading partner and as a supplementary banker.
Since you have charged GST on your invoices, you now have to pay to Customs in advance of your collection. Which means additional financing cost and strain on your cashflow.
Just imagine an additional 6% financing on RM10bil trade a month, our bankers are gleefully rubbing their hands in anticipation of your aggregate bank accounts being overdrawn by an additional RM600mil!
This seismic GST move might just changed the trading culture and mentality of the supply chain. Do not be surprised if your long-term loyal supplier start asking you for shorter payment terms or for on-time payments or both.
The new mantra will be “Show me the money” or no more supplies!
To those of you who have been under declaring your sales, there is no escape now.
Against a background of slow economic growth, your sudden massive sales growth might just attract the attention of the Inland Revenue who could possibly turn up at your doorsteps and asking “Show us your money”.
To those with ill gotten gains, laundering your money through your GST-compliant businesses will result in 6% less for your washing efforts.
But knowing how creative you can be, I will not shed a tear for you. I am confident that you will double your creative efforts to “Wash other people’s money” into your own successfully.
Till today, the nation is puzzled as to where our tax money invested by 1MDB has gone to? Since it has been flying all over the world from Dubai to Cayman Island to Singapore, then it would be categorised by our Customs as exempted from GST.
From the man in the street to the opposition and even from our ex-Prime Minister, there is a loud chorus of “Show us our money!”