Malaysia introduced goods and services tax (GST) in April this year. However, the rollout has been anything but smooth. Lau Kien Foh, partner- advisory services, EY, has been closely involved in the process. In an interaction with Sudipto Dey, Lau shares some lessons from Malaysia’s experience that could be of use to India. Edited excerpts:
Although considered important for the Malaysian economy, why was GST unpopular with the general public?
As a tax scheme, GST touched a broader base of population than a direct tax scheme. In that context, you should expect some resentment. Those who were used to not paying tax now had to pay. If you look at it from an economy standpoint, it is a scheme of taxation that is proven in many countries. Whether it will help an economy will depend on many factors.
It is still early to judge the success of GST in Malaysia. As a process, it requires a lot of preparation for business to understand what they are going into, and how they should prepare for it. If they prepare well, businesses can actually leverage on this opportunity to optimise their business.
Companies should spend time, firstly, on impact assessment on themselves. Second, they should have a strategy on how to leverage this impact to come out stronger. They have to be more competitive to ride on this scheme successfully.
How early did companies in Malaysia start preparing for GST?
A number of companies started doing the impact assessment early even before the GST law was passed. When it comes to crossing the line (when the GST law comes into effect), these companies were more surefooted. Many companies opted for impact assessment early, as this whole process started 10 years ago. It was very important for them to be aware of the areas they needed to focus on. They could start to see how to optimise their business processes even when GST was not a law. There are some companies (in Malaysia) which did not start early; they are now coming to us for post-implementation review. The cost of correcting a business process now could be higher for them. They may now have to undo some things they have done over the past 24 months. You cannot optimise your business processes if you don’t start early, and chances are you will lose some competitive advantage.
How did the government communicate with people on the street on how GST will impact their lives?
There were several unsuccessful attempts by Malaysian governments over the years to bring GST. We tried three times before successfully passing the law (in 2014). Technically, the journey started 10 years ago but it was somehow not able to overcome some of the forces at that point of time. These could be political forces, timing of the economic development, among others. However, in the past 24 months, there were not many choices for the government but to force GST through. There was pressure on the government due to falling oil prices, and adverse comments by international financial rating agencies. There was a threat that the country’s ratings might go down. From a political standpoint, we had an election (last year) with a new government in power. It was better to do it now than closer to the next election.
Actually no amount of communication on GST is enough, as it is a major reform, and the message is too big. Even when we went live (with GST) there was some mis-information with the public. The government had nationwide road shows, there were dialogue sessions.
Further, it takes time for industry to settle down and adapt to the new situation. Also you must have enough time to face the consequences of this (reform) – especially while facing the voters.
How important is enforcement to ensure that there is no profiteering by some businesses when the changeover takes place?
You are bound to have companies trying to take advantage of the situation to get some quick profit. Some companies in Malaysia increased the prices first in anticipation of GST. The Malaysian government has tightened enforcement. However, enforcement is not easy as there are many reasons why costs go up.
Another challenge the Malaysian government faced was the time taken in providing the refund of input tax. Initially the government took longer time to refund, as the volume was much bigger than they thought. Industry might be claiming refund but you cannot give refund without proper audit.