| KUALA LUMPUR
KUALA LUMPUR Oct 31 Malaysia's new consumption
tax is a boon to IT companies that stand to win infrastructure
contracts and fees - provided they can convince people to switch
to electronic payments in a country where 91 percent of
transactions are in cash.
The 6 percent goods and services tax (GST) that Prime
Minister Najib Razak announced in his annual budget speech on
Friday is aimed at narrowing a budget gap that is expected to
hit 4 percent of gross domestic product this year.
Cash payments are harder for tax collectors to track, so the
government is encouraging e-payments as a way to reduce costs
and improve efficiency.
For companies such as Censof Holdings Bhd and GHL
Systems Bhd that specialise in creating electronic
payment and software systems, the initial benefit will likely
come well before the tax is implemented in April 2015.
These companies, along with privately held Brilliance
Information Sdn Bhd and Revenue Harvest Sdn Bhd, are seen as
front-runners for government contracts to build the necessary
infrastructure because Malaysia has a procurement policy that
favours local companies. The government has not disclosed how
much it will spend, but a similar project in Australia in 2000
cost A$4.5 billion ($4.31 billion).
That potential has caught investors' attention. Censof's
shares are up 64 percent in the year to date while GHL's have
jumped more than 160 percent, both handily outstripping the
broader market's 7.7 percent gain.
"To impose GST, you need to capture sales accurately and it
needs to be done electronically. You need payment infrastructure
in place," said Raj Lorenz, group CEO at GHL, Malaysia's largest
e-payment firm by market share.
"The business is very bright but there are a lot of people
using cash, so they (the government) have to make them all use
e-payments. In the end, the only guys who can get away with it
are those in the night markets," he said in an interview with
Ameer Shaik Mydin, executive director with Censof, concurs,
adding that all of his company's systems are GST-ready and
waiting to be implemented on clients' sites.
"We've done it in Singapore and Australia," he told Reuters
in an interview on Monday, referring to clients overseas. "It
definitely has to be electronic. If not, I have to say it'll not
Malaysia's central bank has offered incentives to encourage
electronic payments, which it thinks can generate annual
economic savings equivalent to 1 percent of GDP. In May, it
reduced the cost of interbank fees on e-payments to about 3 U.S.
cents from 63 U.S. cents and increased cheque processing
charges. It wants cash transactions to make up 63 percent of the
total by 2020, down from 91 percent now.
E FOR EVERYTHING
Accounting for GST is especially tricky in a cash economy.
Businesses might understate sales to lower the tax bill. But for
cash-only companies, making the switch will be costly.
"Big boys can afford it but what about eateries, sundry
shops? Do you expect them to pay for such machine and issue
receipts (on GST)?" John Yong, a business consultant based in
Kuala Lumpur, said.
"If they don't buy and issue receipts then the 6 percent GST
is not going to be remitted to the government. Some industry is
just not ready for GST," he added.
The finance ministry has recommended that only companies
with annual sales above 500,000 ringgit ($158,200) be subjected
to GST, according to local media. That means 78 percent of total
businesses - or 433,558 small and medium enterprises - would be
E-payment companies such as GHL and Censof currently get a
fraction of the 50 sen per electronic transaction fee. The
central bank expects the number of e-transactions to surge
10-fold to 12 billion by 2020. That would work out to about 6
billion ringgit a year in fees.
The e-payment industry is consolidating just as business
appears to be picking up. GHL, which counts banks and small
businesses as clients, announced earlier this month it is taking
over Australian listed peer e-pay Asia Ltd. Censof
bought a controlling stake in rival Time Engineering Bhd
The next step for Malaysia is getting companies to file
their taxes electronically. Yeo Eng Ping, who leads the Malaysia
tax practice at accounting firm Ernst & Young, said the
government was considering an e-filing system that would be
compulsory for exporters and for businesses with annual turnover
exceeding 5 million ringgit.
"E-filing allows for a much more efficient process of
reporting, recording and ultimately collecting tax, not just
indirect tax. This is especially so when teamed with e-payment,"
($1=1.0431 Australian dollar, 3.1568 Malaysian ringgit)
(Editing by Niluksi Koswanage and Emily Kaiser)