Photo - Frank Lee, MD, iContro Software.
Malaysia's Budget 2014 includes the introduction of a 6 percent Goods and Services Tax (GST) to replace the current sales and services tax on 1 April 2015, which will bring chaos especially to the manufacturing sector as yet unprepared for overhauling legacy systems, according to local enterprise resource planning [ERP] firm iContro Software.
Speaking in Kuala Lumpur, iContro Software (iContro) chief executive officer, Frank Lee said, "Malaysian manufacturers are only just starting to realise the daunting efforts required to upgrade their most critical IT system - the ERP, to be GST-ready. [There will be a chaotic period as never seen before, as these companies rush to replace their unworkable legacy ERP systems."
So far, only a handful of manufacturers are beginning to realise how little time they have left, said Lee. "When it finally dawns upon the majority of Malaysian manufacturers that their ERP system are simply too old to be upgraded to be GST-compliant, that is when there will be a mad scramble by top management to put ERP overhaul as the priority of their IT budgets."
He said an April 2012 survey by the Federation of Malaysian Manufacturers (FMM), coincidently showed that more than 60 percent of businesses responded that they were ready to implement GST, while 40 percent indicated that only basic preparations such as attending seminars and training to familiarise themselves with the GST scheme, have been made.
Lee said that Deloitte Malaysia more closely estimates that less than 5 percent of businesses have started getting themselves ready.
GST: more complicated for manufacturing sector
He expected "imminent chaos to hit the local manufacturing scene - starting as early as the first quarter of 2014, and carrying on until the last minute prior to the nation's Goods and Services Tax (GST) implementation deadline on 1st April, 2015."
Lee said the introduction of GST is more complicated for Malaysia's manufacturing sector because the ERP system would need to accurately identify and capture the tax imposed or exempted details at the various raw material processing stages of the finished goods being manufactured.
"Currently we know of more than 270 items that will be exempted from GST, and not even including the various state, zone or incentive tax inclusions or exemption that apply to specific manufacturing businesses operating in Malaysia," he said.
"With no prior experience or local business knowledge in implementing a GST-compliant system for a core IT systems as massive as the ERP, many foreign IT brands will be challenged to supporting their base of manufacturer customers," said Lee.
"There confusion and frustration in swapping over to newer ERP alternatives as many of the large US and European ERP brands will face significant problems to assist their IT budget-strapped manufacturing customers to have a working and proven GST-compliant ERP system," he said.
For the record, today there are more than150 countries worldwide that have already adopted GST. For a quick comparison, Singapore adopted GST in 1994 and Australia in 2000, said Lee
He said that Australia, adopted Singapore's implementation of GST as a model, and yet, despite Australia having a more mature and organised business culture compared with Malaysia, it took almost 3 years to finally stabilise a workable model.
"This is why Malaysian businesses, especially those in the manufacturing sector that have the gigantic ERP that is heavily 'system-affected' by GST, need to wake up now to the enormous work at hand," said Lee. "The best advice is to start making crucial decisions on your ERP system now."