Believe it or not Malaysia Goods and Services Tax(GST) has been here for more than six months since its implementation on 1st April this year and our economy has been changing tremendously over the past few months; good and bad as some may see it. However, moving forward is quite a task for the local SMEs especially retailers. In contrast, at least business owners who opt to become a franchisee will have a head start in the business compared to newbies as they will have exclusive rights in selling and branding factor.
However, it appears as though times appear to be worse for the Malaysian economy and with the recent report issued by the Malaysia Retailers Association (MRA) back in July this year where the MRA has lowered the projected retail sales growth rate in 2015 for the third time from 4.9% to 4% as consumers have been holding back their spending due to higher cost of living, a weak ringgit and higher cost of doing business. Even some news is circulating before the GST implementation regarding the price of certain products or services will be much expensive when GST is implemented thus affecting the consumer spending and their sentiments.
Consumer sentiment is indeed crucial as a lot has been focused on the uncertainties of the products and services pricing before and after GST. Although there are a lot of efforts in educating the public by the Government and the enforcement of the Anti-Profiteering Act to ensure the retailers are not selling their products or services in an exorbitant price, it seems the consumer are remaining skeptic on this.
Some of the reasons may be due to the insufficient education and guidance to the business owners as GST is indeed burdening them in terms of administration, hunting for suitable GST-software, GST rules and regulations, and book-keeping which in turns affecting the operating cost of doing business. When operating cost is high, it will affect the retail price and this will chase the consumer to go to the competitor who is able to sell the same product at a cheaper rate while the other consumer may not want to purchase at all.
More Education Needed on GST Implementation
Retailers need to understand how to set their pricing especially after the implementation of GST and without getting penalised under the Anti-Profiteering Act. Cheng & Co have been providing necessary GST consultancy to help the business retailers in implementing GST not only software compliances but also understanding the cost factor affected from purchases with GST and other overhead costs that is affected by GST. All these can be claimed back as GST input tax upon finalising the GST returns to the Royal Malaysian Customs (RMC) only if the retailers are GST-registered. However, managing the cost can be a bit hectic and it involves more administrative works.
Credit management will be one of the elements which retailers need to monitor closely. Whether it is a credit given by the supplier or to the consumer, the GST portion from the sales has to be paid to the RMC once the invoices have been billed regardless whether the payment has been received from the consumer. Franchisor or franchisee has to be aware of these as some business transactions do involve credit and when badly managed the effect can be huge.
Another extension from the credit management to look out for is the GST Bad Debt Adjustment. Those suppliers who are supplying on credit to their customer since 1st April and have not received any payment from them after six months, are compulsory to claim back the paid GST output tax derived from the sales as GST input tax. However, these must be monitored closely with GST-compliance software and the accountants must be well-trained in both GST credit management and GST Planning. GST Planning must be well understood by the accountants in order to manage the 21 days rules, gifts rules, employee benefits and so on which will affect the payment of GST output tax. Cheng & Co will be providing seminars on GST Accounting, GST Planning, & GST Audit Seminar soon to guide the business owners on the GST technical issue.
Taking Business International
Weakened ringgit also spells trouble and placing the retailers at a vulnerable spot especially to those franchisee’s retailers who get their products via import. Moreover, the retailers will have to first incur some cost where the imported products will also be GST-taxable unless specified under GST Zero-Rated or GST Exempted supplies. In contrary, it can be seen in another perspective where franchisor is encouraged to sell their franchise out of Malaysia as there is no GST charged for exporting goods and with the current slump of Malaysian ringgit, we can see them doing fairly well and not much affected by the GST. In this current situation, potential franchisee needs to look for local franchisor and encourage more usage of local products rather than imported products as these can be alternative choice for consumers as imported products will be much expensive due to weakened ringgit and with additional GST as well.
With the current economy flow, local franchisor must put in more effort in strengthening their brand and seize the opportunity to encourage and attract potential franchisee to buy the franchise. GST regulations must beadhered to and system compliances must be made effortlessly simple for the franchisee to follow as franchisee may not want to be at risk of penalty. Franchise fee and royalty’s payment to franchisor must be stipulated clearly in the agreement as both are GST-taxable at 6%. However, some materials may or may not be GST-taxable and must refer to the GST Zero-Rated and GST Exempted Supplies Listings. (To have a glimpse on how the Malaysia GST model works, please logon to http://www.chengco.com.my/articles/Malaysian%20GST%20Model.pdf)
Cheng & Co would like to remind any potential franchisee and the
franchisor, if the annual gross sales turnover exceeds RM500,000 the businesses are required to be GST-registered. However in the franchise issue, we may see there is a need for the franchisor or franchisee to be GST-registered if one of them is registered as to maintain the consistency in terms of pricing. It would be awkward if a consumer pays two different prices for the same brand but different in terms of franchise with either one of them are GST-registered while the other is not. Moreover, it is highly recommended for those franchise to be GST-registered as they can claim back the GST input tax incurred from their purchases, expenses, franchise fee, and royalty fee.
With the Budget 2016 announcement around the corner, let’s hope that the Government will have something positive up their sleeves which can further strengthen the current economy and move towards a high income nation in 2020.