Companies operating in certain industries may face increased competition and margin pressures pursuant to the implementation of the goods and services tax (GST) next year.
The industries categorised as “GST tax exempt” and mainly dealing in the final business-to-consumers supply chain, would have to decide whether to pass the increased input costs in order to protect their margins.
“The concept is that you can only claim (input taxes refund) if your charging is taxable, which is either 6 per cent or 0 per cent (for the zero-rated category),” the director and trainer at the GST Academy, Manmohan Singh, told StarBiz at the sidelines of the Morison AAC International Seminar on the GST Implementation yesterday.
“Once your charging is exempt then you cannot claim the input tax and this would mean increased business costs.
“They will have two options, to either maintain their profits or facilitate a cost-plus mechanism. For these industries, it remains to be seen if market forces would be one of the major influences in shaping their decisions as well,” Manmohan added.
The industries under this category mainly belong to the services segment of the economy such as financial, education, childcare, healthcare, mass transportation (including bus, water, taxis and rail), funeral, burial and cremation services.
Residential land or building, agriculture land and general use land, accommodation, tolled highway or bridge, supplies made by societies and similar organisations that are free are also considered “tax exempt”.
Meanwhile, at his presentation at the same seminar, Morision AAC’s Australian-based corporate director Greg Hayes said that certain industries mainly in the retail sector might see consumers increase their purchases a few months prior to the GST implementation on the notion that there could be cost savings.
“People may look to take short-term advantage before the GST decision. This will have a positive impact and there may be a surge in business in the period leading up to the implementation date,” he said
“We may get a slight temporary change in business cycles. After six months of the implementation in Australia, it then normalised thereafter.
“This happened on the notion that things would eventually get more expensive,” Hayes added.
On the same matter, Manmohan said that the same experience also happened in Singapore where the retail segment saw a mini-boom in consumer spending in the four to six months leading to the GST implementation there.
“There is a lot of fear factor involved as what had happened in Singapore. There was fear among the consumers as they did not know how much prices would increase by and they kept on spending leading to a boom to buy washing machines, televisions etc.
“But after April 2015 there may be a sudden slowdown for the next few quarters. This is the unintended impact of this scenario,” he said.
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Saigon Business Corporation Pte Ltd (SBC) is incorporated in Singapore since 1994.