SMEs face cash flow woes over delays in GST refunds

KUALA LUMPUR: Almost five months into the implementation of the Goods and Services Tax (GST) on April 1, many small businesses are facing cash constraints as they have yet to receive refunds despite waiting for at least three months after submitting their input tax claims.
Traders that SunBiz spoke to said their input tax claims have not been processed, resulting in businesses having to reduce stock purchases due to tight cash flow while some have written off these unpaid refunds as losses.
The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) said the delay in the input tax refund is a result of the Royal Malaysian Customs Department's (Customs) decision to carry out a verification process to ensure the validity of each claim after it was shocked to receive submissions for huge amounts in certain cases.
"After receiving the first round of claims, they sent a blanket letter saying that they will audit all businesses. This sent many businesses into a panic. However, Customs later clarified that it is only a verification or review," ACCIM national council member Koong Lin Loong told SunBiz in an interview.
Due to the time-consuming verification process, businesses are now facing cash flow problems, which could have a negative chain effect, he said.
"Businesses may end up using reserve funds that are meant for future capital expenditure or expansion plans, or look for more loans. They end up paying interest, leading to a rise in the cost of doing business," he added.
Koong said when the issue was brought up during a meeting with Customs, the authority said many businesses made errors when filling up the forms. In addition, many newly incorporated companies, including private limited companies, sole proprietors and registered persons, were found asking for refunds.
While there are highly suspicious cases and chances of fraud, Koong said, it should not be the reason to penalise genuine businesses that made unintentional errors, especially in a slow economic environment.
"Don't follow the Act blindly. Be business friendly. After all, businesses are only agents of collection. They collect GST from customers on behalf of Customs. Do not penalise them as most of them are genuine.
"Customs should instead study the situation and nab the right ones. Businesses not only help to collect GST, they also pay income tax when they make profits," said Koong.
He suggested that Customs process input tax claims and carry out verifications if needed but monitor and investigate highly-suspicious cases.
"No doubt there will be syndicates out there but don't nab the genuine businesses. Instead, Customs should go for the high risk cases such as those with very high claims, companies that were newly set up just before GST and those with no track record," he said.
Koong estimates 7,000 companies are doing monthly submissions while 300,000 to 310,000 are doing quarterly submissions.
Customs has informed ACCCIM that 96% of April refunds have been paid while 90% of May refunds have been paid to date.
Meanwhile, Customs Department GST director Datuk Subromaniam Tholasy, when contacted by SunBiz, said delays in refunds are largely due to errors in submissions.
"Errors are made, even by large companies and GLCs. For SMEs, definitely there are a lot of errors made probably because they were unprepared or they didn't attend the hand-holding programmes.
"For example, when they submit their forms, they say they have export sales. However, we also have a system for export sales and when we cross check, it's not there. It doesn't tally. So Customs officers will contact them to verify the details but, sometimes, they don't respond. That's why there are delays in refunds," he said.
Subromaniam said Customs' system contains a certain ratio for input tax and the system will trigger a red alert, flagging cases that need to be verified, in cases where it doesn't fall within the ratio.
"We must verify before issuing the refunds. When a company registers for GST, we have all their details already. We know how much their turnover is. For example, a company would have a monthly turnover of RM10 million at registration but when they put in their claims, it is RM12 million. This has to be verified," he added.
Although he acknowledged that refunds in some cases should have been processed earlier, he assured businesses that Customs has enough manpower to handle all GST matters and encouraged them to attend hand-holding programmes that are ongoing.
Although there is no moratorium, Customs will go on an advisory role for the first few years. Subromaniam said penalties depend on the severity of errors made. While minor errors can be rectified easily, he added, action has to be taken on major errors.