Deloitte Journey To Malaysian GST Survey  

KUALA LUMPUR, 27 April 2017 – Deloitte recently conducted the “Journey to Malaysian GST” survey amongst clients of the Malaysian practice to offer insights from businesses that have very recently been through a GST implementation process.

One of the key findings of the survey was, almost 70% of respondents who exceeded budgets for their implementation project confirmed that the principle reason was issues with the IT system. Underestimating the scale of work involved in adapting the current IT system to deal with the new tax was costly and time consuming, and the single largest reason for budget overruns.

“The results were not surprising, as whilst many assumed the implementation was largely a tax issue, it was more a business transformation issue. A lot of work had to be done to enhance and upgrade IT systems to meet the complex GST requirements,” explained Senthuran Elalingam, Asia Pacific Indirect Tax Clients, Markets & Industries Leader. “Unfortunately, few anticipated the amount of the time and resourcing it would require, and this resulted in the cost overruns.”

By and large, businesses were required to make significant accounting system adjustments to adequately handle GST compliance. The survey found that while the majority of respondents were able to adapt their accounting system to adequately deal with the introduction of GST, those that were not were largely able to deal with the issue by purchasing an “add on” tax engine or procuring other system fixes. However, such major IT changes often added significant time to project timelines; as such, early identification of such issues was crucial.

“As the GST was a business transformation exercise, it required a lot of work translating the GST requirement and applying them in a practical business environment,” said Tan Eng Yew, GST & Customs Country Leader. “Many businesses discovered too late that their current system was not sufficiently equipped to handle all the requirements and some had to even implement manual processes as a work-around. Unfortunately, we see of these manual processes still existing even today.”

In relation to this, feedback from Malaysian businesses indicated that over half of the respondents in hindsight would have started their GST preparations earlier had they known the scale of the work involved. The majority of respondents with prior experience of VAT implementation would recommend setting aside at least six to nine months for the process. In particular, only 10% of the respondents needed less than six months to prepare.

“The businesses that started early in their planning in terms of understanding what parts of their business were impacted and which of their processes needed to be updated were the ones that were better placed to manage the transition. Although there was a lot of encouragement from the authorities, many businesses did not appreciate the amount of work needed and were caught short,” Tan commented.

Interestingly, findings from a parallel indirect tax client survey, conducted by Deloitte to gauge the level of knowledge of VAT within the Gulf Cooperation Council (GCC) marketplace and to understand the preparations underway to get ready for the introduction of VAT, showed that business concerns on GST implementation in Malaysia mirror those currently being experienced across the GCC. Respondents in both surveys cited internal factors such as lack of knowledge regarding indirect tax rules, talent resourcing and IT system readiness as being their main area of concern for the introduction of indirect tax.

“Being prepared when it comes to GST is as important now as it was then and businesses should not lose sight of this. Businesses need to continue to stay updated both in terms of the changes in GST but also change to their business practices or processes that could impact GST,” Senthuran said. “Unfortunately, as it is a transaction tax, there is no rewind button that allows you to go back and fix things.”

The “Journey to Malaysian GST” survey was completed by businesses in Malaysia spanning all industry sectors, giving a true reflection of the opinions of the business community as a whole. Insights from this survey are included in the Preparing for VAT in the GCC - Indirect Tax Survey 2017 report, where the full results demonstrating where businesses in Malaysia and the GCC are today are summarised.

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