GST zero rated-items too many to manage?
Published on: Saturday, October 25, 2014
PETALING JAYA: After the Government finally unveiled the long-awaited list of zero-rated and exempted items under the Goods and Services Tax (GST), questions are now arising over whether the list is too long for it to manage.Comprising over 900 items, some tax experts believe this is an unfavourable scenario that could expose the system to abuse and exploitation once the GST goes live on April 1 next year.According to PricewaterhouseCoopers Taxation Services Sdn Bhd (PwC) Executive Director Raja Kumaran, Malaysia's zero-rated and exempted lists seem to be the longest in the region.
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In Singapore, Thailand and Indonesia, zero-rating only applies to exported goods and services, while in Malaysia, it is a comprehensive list of items, including food supplies.For zero-rated items, a zero tax rate is imposed on consumers, while businesses throughout the supply chain will be able to claim back input tax incurred in the production process.For exempted items, consumers do not pay for GST while the entire supply chain except for retailers will be able to claim back the input tax, which are GST taxable costs such as electricity, raw materials, professional services and other items.However, Customs Department GST Director, Datuk Subromaniam Tholasy, said that the length of the list would not pose an administrative challenge as it was similar to the sales tax which was implemented over 40 years ago.
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"Not all products are taxable under the sales tax. There is also a tax-exemption order and the list is almost as long. The only difference is the scope is limited to manufacturers and importers," he said, adding that all the products on the list had an accompanying Customs tariff code.He also noted that the comprehensive list reflected the importance of balancing between the Government's revenue collection requirements and the need to provide an adequate social safety net for the lower income groups.
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Subromaniam said under the GST, the scope would be widened to cover the whole spectrum of the supply chain, including retailers and wholesalers.He said this was where potential compliance problems could surface, as these "new kids on the block" may struggle to classify the goods and services that were zero-rated and exempted.To minimise such issues, he said the Customs had embarked on programmes for businesses to prepare themselves for the GST."This is why we keep saying that they need time to prepare. Don't take this lightly or you (businesses) will suffer many problems. Retailers especially will find the list a big challenge because they can sell so many items," he said.However, he said the length of the list would not pose significant compliance cost increases for traders.Subromaniam stressed the need to upgrade the point-of-sales (POS) system, noting that it should be integrated with Customs-approved GST accounting software.He said Customs was working together with manufacturers, so certain products such as sugar would have a barcode to inform retailers whether the item was standard or zero-rated."This is provided retailers have upgraded their POS system. This is one of the ways traders can minimise issues of compliance and reduce the complexity of item tax-classification," he said.From January to March, Subromaniam said over 1,000 audit officers would be deployed nationwide to visit an estimated 100,000 to 150,000 small and medium enterprises (SMEs).He said his officers would check whether the SMEs' systems had been upgraded and assist those who had yet to upgrade or had encountered glitches.However, PwC's Raja suggested that the Government consider giving direct tiered subsidies such as vouchers for buying daily essentials instead of having a long list that benefited everyone and not just the poor.Raja also said there should be a consistent message sent out if it wanted to ease the burden on the poor, citing an example where milk was taxable while lobsters were not."The shorter the list, the better and more efficient it is. A long list here creates a grey line and that can easily be exploited," he said.Additionally, Raja said a long list of zero-rated and tax-exempted items made doing business more difficult and could add to costs instead.He said zero-rating was also more costly compared with exempting because the former applied to the whole supply chain.Stay up-to-date by following Daily Express’s Telegram channel.
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