SEVEN months into the GST era, the results appear to be positive. The total number of GST registrants has increased to 400,000 and this figure is expected to continue growing.
The average GST returns submission rate is also well over 90% based on statistics released by the Royal Malaysian Customs (RMC).
For the period April to December 2015, the Government has forecasted the revenue from GST to be RM27 billion, which equates to about RM3 billion per month.
As announced by the Prime Minister during the recent tabling of the Budget 2016, the projected GST revenue for 2016 is RM39 billion and this represents a healthy net increase of RM21 billion from the RM18 billion that was expected to be collected under the previous sales and service tax regime.
However, the experience has not been as positive when it came to the GST refund process. The month of June 2015 marked the initiation of the GST refund process by the RMC and delays in the refunds were experienced.
RMC needed to conduct a verification process that included the request for certain financial information, listing of tax codes, etc. to ensure that the applicant’s claim for refund was accurate, prior to refunding the GST. The RMC also attributed the delay in refunds to the following reasons:
* Transactions were reported in the wrong taxable periods
* Information in the return was incorrect/incomplete
* No or slow response from the applicants to queries by the refund officers
* False/doubtful claims that required further verification
* Input tax credits were wrongly claimed
* Incomplete bank information
Based on the findings cited by the RMC, we can safely assume that risk areas exist in the GST reporting structure of many businesses which can result in erroneous GST returns being submitted.
Errors include understating output tax or overstating input tax credits that result in the understating of the GST liability to the RMC.
The penalty for filing an incorrect GST return renders the offender liable, upon conviction, to a fine not exceeding RM50,000 or imprisonment for a term not exceeding three years or both, and a penalty equal to the amount of tax which has been undercharged.
To avoid the risk of being penalized by the RMC, many businesses are now proactively identifying and resolving the risk areas within their GST reporting structure.
From our experience, there are three major areas which require close scrutiny – people, process and technology.
Many businesses did not anticipate the widespread implications of GST, thus little time and money was spent to be GST-ready. Upon GST implementation, many struggled with the GST technical aspects due to a poor understanding of the law and the lack of proper upskilling.
As a result, financial accounting systems were wrongly configured based on inadequate user requirement requests, which then resulted in erroneous data transposition.
Compounding these problems, many organizations did not have guidelines and standard operating procedures (SOPs) in place to prepare the GST return, which is crucial if there is a change in personnel.
The obligation to file GST return on a monthly basis is proving to be a heavy burden for most finance functions within an organization given the lack of GST knowledge and support.
The personnel responsible for the preparation of the GST return must be equipped with the right level of GST knowledge, such as according the correct GST treatment to various transactions, adjusting for bad debt reliefs, claiming the correct input tax credits and making many other adjustments to the disclosure in the return.
To remedy the situation, affected businesses should ensure that their GST reporting function is well-resourced; possesses relevant GST competencies; is guided by well-documented SOPs; and keeps abreast of updates to the GST legislation.
An effective GST reporting structure will provide peace of mind to the various stakeholders of the business and keep penalties at bay.
* Yeoh Cheng Guan is a Partner of EY Malaysia’s Tax practice. The views expressed above are the views of the author and do not necessarily represent the views of the global EY organisation or its member firms.