Singapore companies with operations in Malaysia are being advised to start preparing for a new goods and services (GST) tax to be introduced in April 2015.
The new tax will be levied at 6 per cent.
Businesses should consider how their supply chain will be affected and how contracts are worded, which can affect how much of the tax they bear, said Mr Robert Tsang, indirect tax leader at Deloitte South-east Asia.
The GST, unveiled in Malaysia's 2014 Budget, will replace the country's current sales and services tax of up to 16 per cent. Essential food items such as flour and rice, as well as bus and train fares, will be exempted.
"With the GST, businesses should really look out for how they word their contracts and who is actually bearing the tax," said Mr Tsang.
For example, a "basic housekeeping point" is distinguishing between prices that are inclusive or exclusive of GST.
Mr Lam Kok Shang, partner and head of indirect tax at KPMG in Singapore, said preparations for the implementation of GST may be "quite extensive" and could take about a year, depending on the size and complexity of a firm's business transactions.
Companies need to assess their transactions, tweak their accounting systems, make preparations to print out documents such as tax invoices and apply for schemes to take advantage of GST suspensions under certain conditions, he added.
"Companies must make sufficient preparations for GST implementation in Malaysia to avoid GST inefficiencies. Transactions which are GST inefficient should be reviewed and restructured, and companies which fail to do so may face cash flow problems and lose their competitive edge."
Singapore companies with operations in Malaysia told The Straits Times said that while they do not expect major hurdles in the GST implementation process, costs are already beginning to go up in anticipation of the change.
Profit margins are already being squeezed by other Malaysian government policies aimed at reducing the country's burgeoning budget deficit, and the tax changes are likely to exacerbate this, said Mr Mike Lim, executive director of bottling firm Dr Who.
"The market more or less saw the GST coming, and some suppliers have already begun to factor the new tax into their prices," he added.
The company has plants and sales offices both here and in Malaysia.
Recent policies such as the minimum wage and the removal of fuel subsidies have already pushed up the cost of doing business in Malaysia, and "GST will have some additional impact on prices, though it's too early to tell how much", said Mr Lim.
Mr Joe Chan, general manager of precision-engineering company Clefton Precision, said the hike in costs as a result of the GST being implemented might blunt Malaysia's competitive edge.
He added that the first impact of GST will be on the price of raw materials used in production.
The company has a manufacturing facility in Johor Bahru.
Acting managing director of Eu Yan Sang Malaysia Eric Chiu said the tax might have an " initial impact on Eu Yan Sang's product prices and operations", though the long term impact is likely to be minimal.
The traditional Chinese medicine group has 88 retail outlets and one manufacturing plant in the country.
"We expect a smooth transition in implementing GST in our retail outlets," said Mr Chiu.
Ms Adeline Quek, International Enterprise Singapore's centre director for Kuala Lumpur, said companies should note that using the GST as a reason to raise prices violates Malaysia's Anti-Profiteering Act, which has been tabled to enable enforcement against such practices.
"The ability of the current government to push these necessary reforms reflects its economic growth priorities. This is a positive development for Singapore companies in Malaysia for the long-term," she said.
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