Singapore companies operating in Malaysia are still uncertain about their readiness for the 6 per cent Goods and Services Tax (GST) which kicks in today.
Some Singapore firms also expect a short-term hit to sales as prices rise after a major spending spree by Malaysians in the weeks before the tax took effect.
A foreign company selling goods or services in Malaysia must be GST-registered if the value of its business is RM500,000 (S$185,000) per year.
For Singapore interior furnishings firm Goodrich Global, which operates five sales galleries in Malaysia, becoming GST-compliant was laborious and costly.
"We had to upgrade our back-office software to have the required invoicing and tracking systems. Another part was to train our staff to understand how the tax works. The entire process cost us about RM50,000," said chief executive Chan Chong Beng.
"We are ready for GST, but we do not expect to be 100 per cent correct. One thing we haven't fully understood is what items or services are exempted from the tax treatment."
Mr Burt Png-Yap, founder and sales director of Smartstripe Marketing, is also unsure. His company, which produces key cards and Nets cards, acquired two industrial units in an Iskandar business park in 2012. Operations will begin in 2016.
"Many unclear areas have yet to be ironed out. I once spoke to (Malaysian) Custom officials at Woodlands Checkpoint for details on GST tabulation for goods brought into Malaysia - they didn't have the information as none had been provided."
Mr Koh Soo How, Asia-Pacific leader for indirect taxes at PwC Singapore, agrees that many questions remain unanswered.
"It is uncertain, for instance, if a GST registration would give rise to corporate tax implications for Singapore companies… Compared to Singapore, the higher complexity of the Malaysia GST system, providing for wider exemption and zero-rating of various categories of goods and services, is likely to lead to more interpretational issues that would take time to resolve," he said.
Companies will face ongoing compliance costs because they have to keep business records and file GST returns.
Those companies operating in Malaysia which do not have a locally registered entity must also hire a tax agent to handle GST obligations - or register a local entity simply for that purpose.
All this uncertainty raises the prospect of penalties for non-compliance. The fine for any errors in GST returns can go up to RM30,000. A similar offence in Singapore could attract a $5,000 penalty, Mr Koh said.
Meanwhile, the pre-GST buying rush has lifted retailers' sales.
Goodrich Global's Mr Chan said: "We saw an almost 20 per cent increase in our Malaysia sales in the first quarter this year. We haven't done so, but naturally we will have to increase our prices - probably by 10 per cent - after the GST kicks in, and that will likely cut our sales by also 20 per cent in the subsequent quarter."
This is comparable to the situation in Singapore when GST was first implemented in 1994, Mr Koh said.
President of the Association of Small and Medium Enterprises Kurt Wee said many of its members operating in Malaysia have voiced concerns over costs.
"Structurally, Malaysia still presents a good level of cost savings even when including GST. We must also keep in mind that GST replaces the original 10 per cent sales tax, which can help offset some GST-related costs. So the net impact is more visible on the business-to-consumer side, but business-to- business it's more manageable."
