KL’s Food Honchos Sound Off on the Abolition of GST

While most folks predicted some immediate changes following the transition of governments, none were prepared for the swift abolition of the Goods & Services tax. The much-maligned substitute for the Sales & Services Tax had come under fire since its introduction in April 2015 for purportedly instigating steep price hikes across the board.

 

It comes as no surprise then that Malaysian consumers have warmly welcomed the move to zero-rate all products and services under GST by June. The reaction by providers has, on the other hand, been slightly more muted. Public scrutiny has been particularly emphasised on the food industry as diners demand meals that are lighter on their wallets.

 

Two prominent members of the Klang Valley culinary scene weigh in on the situation.

 

Along with Lissa Yeoh and Yeoh Way Cheng, Szeto Yuen Yin is the founder and director of Good Food Trio Co., which owns La Risata, Bijan Bar & Restaurant, and The Daily Grind. Meanwhile, Liang Foo Kuan is the chief executive officer of Big Onion Caterer, a catering and event management company that boasts a 600-strong corporate clientele.

 

1. How have you prepared your business for the abolition of GST?

Yuen Yin: Apart from operations and administration, we did not perform any other preparation for the abolition of GST. Our head of departments have all been briefed of the effects and implications as well as how to handle the directive.

At our restaurants, our menus already do not include GST alongside the prices so there was no need to reprint them. We also have had all our point-of-sales and accounting systems updated to accommodate the tariff being zero-rated. Likewise, we work with our suppliers and vendors to ensure they charge us rates at 0% GST.

 

Foo Kuan: Like many businesses, the news came as a sudden shock to us. Our main concern lied with our stock in hand. Prior to its abolition, the tax is levied on inventory supplied to us by vendors, which is then carried forward to the customer. Our cashflow is planned months in advance, with the food we order and store accounting for a serious chunk of that. With the removal of GST, we were left with food that we had already paid tax for, but cannot reclaim at resale. You can imagine the adjustments we had to make to our finances.

 

2. Given more time, what would you have done differently?

Foo Kuan: We would have planned our food spend more carefully. As it was, we only had slightly more than two weeks to make the necessary changes in line with the abolition of GST.

We would also have handled our clients a little better. A small number took advantage of the announcement and delayed the issuance of invoices until after the cut-off date in order to enjoy GST-free rates in spite of what had been quoted in the cost estimates.

 

3. What could the authorities have done differently in removing GST?

Yuen Yin: I think the authorities had no option but to zero-rate GST for the interim period before fully abolishing it as there are transitionary matters that businesses need to attend to in order to adjust and adapt. Further time is also required to repeal the Goods & Services Tax Act and replace it with something else.

 

Foo Kuan: I think the government has done their best with the time and resources given themselves. There are winners and losers in such affairs. Instead of bemoaning any losses and pointing fingers at whatever guilty parties, we should look ahead to the future of our respective businesses. There might be a slight dip in performance in our financial reports, but that is to be expected.

 

4. In the three years that GST was implemented, how has it affected your business, whether positively or negatively?

Yuen Yin: When the GST was implemented, people cut back on their spending. Our overall sales experienced an initial drop of around 15 to 20 percent. It took almost a year for sales to return close to but not quite at pre-GST levels.

On the purchasing side of the equation, overall costs rose beyond the GST rate. While we can offset input GST against output GST, our expenditure increased as suppliers raised prices by more than 6 percent.

Fortunately, our business operates on a cash basis so what we bill, we collect and pay to Customs unlike others that give credit terms and have to pay over the invoiced GST amount before they collect it.  

 

Foo Kuan: The introduction of GST brought about a domino effect that affected every step of the supply chain. Many of our vendors were small-scale enterprises; mom-and-pop establishments with low overheads and narrow profit margins.

When GST entered the fray, they could not cope with the costs involved in buying new systems and retraining employees. Most of them folded or moved into other lines of business. We then had to scour the market for bigger players and subsequently bigger charges. The products remain the same but the prices do not. We had to stick it out and absorb them or risk losing our customers.

 

5. Other than lower prices, how do you think the abolition of GST affects your customers?

Yuen Yin: The abolition of GST ultimately means the reintroduction of the SST. This may again affect the services industries like ours in a negative way depending on the percentage of tax. It may be more expensive to dine out at restaurants within the ambit of the SST.

 

Foo Kuan: I think the biggest casualties of GST are the businesses that are ineligible for GST licence and also do not fall under the zero-rated supply category, meaning they cannot reclaim GST paid on purchases and expenses. Of course, from the public point of view, it was their spending power that took the most hit. With the abolition, we need to build confidence among people to spend again.

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