Common Business Pitfalls in the GST Era

By Kenneth Hedh, Senior Director of Professional Services for Epicor in Asia

The implementation of GST is finally here. Marking a new chapter in the Malaysian business landscape, the manufacturing segment has been tying up all loose ends by attending educational seminars, consulted tax professionals to study on its possible effects, and obtained a GST compliant software for complete compliance. Moving forward from meeting tax compliance, manufacturers are now looking to run GST administration and reporting a ‘business-as-usual’ operation to focus on more essential matters, such as increasing competitiveness and effectiveness of their business model in meeting customers’ needs.

Prior to the implementation, it was mentioned 10% of 345,367 companies registered with the Customs Department did not have a tax file. Meaning, about 30,000 companies which has a turnover of RM500,000 annually has not been paying taxes for the number of years. As such, one may expect that Malaysian manufacturers will have to brace themselves for a period of uncertainty and unfamiliarity in dealing with these issues. However, this needn’t be completely true. 

By looking at key learnings from manufacturers in other GST applied countries, organisations can adopt some key lessons and avoid repeating similar, common mistakes. Here are some notable pitfalls and how businesses can avoid them.

#1 – Thriving in the GST era is a teamwork effort
Though the effects of GST are mainly financial in nature, the implications transcend beyond mere accounting and tax functions. Contrary to popular belief, it isn’t sufficient to rely solely on accountants and tax professionals to ensure full tax compliance. If manufacturers aim to do more than simply ‘comply’, it requires a teamwork effort across the organisation.

In fact, the first step manufacturers need to prepare to identify the most suitable ERP system is by identifying the impact of GST to their company and preparing all staff for the change. This is only possible by working as a team, finding out your businesses needs by working with all important segments, not limiting to accounting or IT staff. 

In the new tax era, manufacturers should also anticipate legislative compliance risks within their processes as well. This includes taking into account risks associated with the organisation’s understanding and interaction with the guidelines by the government, as well as risks if organisation fails to properly analyse its GST environment. 

Coupled with the expectation that the government will continue to make some finer adjustments to the GST guidelines in the coming months, manufacturers should prime their staff and accounting software tools to be ready and adaptable for both external and internal influences. Preparedness for this would require all staff to work together to put in place standard operating procedures and a willingness to collaborate when such changes take place.

#2 – Reluctance of manufacturers to invest in an effective GST compliant software
Though most businesses have obtained GST-compliant software, some manufacturers are still equipped with basic accounting software in attempts to minimise expenses. Though merely able to produce vital documents such as the GST Audit File (GAF) and the GST-03 (Tax Filing) reports, this would not allow room for the business to flourish.

In 2014, Epicor Software Corporation conducted a survey among 1,500 professionals in mid-sized companies across 10 countries. The findings revealed that although an overwhelming 80% of the respondents agreed that an Enterprise Resource Planning (ERP) is critical to their business,
approximately half described the performance of their current ERP system as merely “adequate” or “basic”. 

In summary, the majority of the respondents’ vision for the ideal ERP system can be summed up in a single word: agility. What does ‘agility’ mean? Used in the context of ERP software, it means the ability to tailor to a business’ unique and specialised needs. Overtime, the ERP system should be able to adapt to change rather than a burdensome obstacle to business advancement.

#3 –The inability to react and effectively manage change
Just like any businesses, manufacturers needs the capability to quickly adapt to change by developing new and existing products in meeting customers’ demands. There is plenty of competition ready to fill in gaps in the market and provide higher levels of service to your potential customers. In this fast-paced era, the ability to be reactive is crucial for responding to market shifts and fast paced innovation, complying with changing regulations while safeguarding your competitive position. Most businesses might be ready to face these challenges in the pre-implementation period, however, these strategies might be redundant in today’s new tax scheme era.

Focusing on best practices and driving out complexity will help to speed up responsiveness, responding to changing demand, tight deadlines, or financial pressures within a timely manner. There are two main ways a business can work to increase its agility. The first option is to have their business processes conform to the ERP software.

However, this could mean spending a lot of time and resources on making major cultural, processes and operational changes, added with more complexity and risk in the implementation period. The second option, is to build the organisation’s business processes into the system in meeting its specific needs. 

Ideally, a combination of both would be best but can prove to be highly difficult as well. Fortunately, some of the latest specialist ERP solutions are able to fill the gap, providing customisation abilities tailoring to specific business needs. Built on agile technology, these systems are in nature highly adaptive and allow for high levels of flexibility and customisation. This is highly advantageous in today’s fast paced business environment, as processes can easily change in an inexpensive manner, allowing modifications to workflows as business practices evolve.

An agile ERP is key to success
With the flexibility of customisation within the ERP software, it is highly easy to modify workflows as business practices evolve; providing a critical advantage in today’s accelerating and rapidly changing manufacturing environment. Industries that deal with high levels of specifications and details will definitely require customisation in their ERP software to facilitate better workflow and business processes. 

This is why selecting a highly and easily customisable ERP software with state-of-the-art services architecture is paramount, as it is the underlying framework that allows for remarkable business performance and flexibility, while minimising the risk of failure in Malaysia’s new tax accounting era.