Chua Tee Yong either failed his accounting or lied when he said big companies will not want to do business with non-GST small businesses as they cant claim their input/output tax

According to a news report by The Malaysian Insider on 16 Aug 2014, Deputy Finance Minister Chua Tee Yong said the below during a GST seminar organised by the Secretariat For Empowerment of Indian Entrepreneurs under the Prime Minister’s department

“Come April 1, 2015, which is the date for GST implementation, the big companies will not want to do business with the non-GST small businesses as they can’t claim their input/output tax.

“This will sooner or later cause these micro and small businesses to become less competitive in terms of pricing structure.”

The above statement by Chua Tee Yong shows his complete ignorance towards the GST implementation subject matter. This is outright unacceptable and an outrageous mistake for a Deputy Finance Minister and an accounting graduate like Chua Tee Yong to commit.

Big companies will not stop buying from non-GST small businesses because they can’t claim their input tax. When big companies buy from non-GST small businesses, there is no need to claim for input tax as no GST is levied on the goods sold.

I will illustrate my point with two scenarios. The first scenario, where a company buys from a non-GST business and the second scenario, where a company buys from a GST registered business.

When a company buys goods worth of RM100 from a non-GST business, the company will have to pay RM100 to the non-GST business. No GST is charged as non-GST business is not allowed to issue tax invoice and collect GST. The cost to the company is RM100.

When a company buys goods worth of RM100 from a GST registered business, the company will have to pay RM106 to the GST registered business. RM100 for the cost of the goods and RM6 for the 6% GST levied. The company is then allowed to claim the RM6 as its input tax. The cost to the company is still RM 100.

In contrary to what Chua Tee Yong said, it would actually be more advantageous for big companies to buy from non-GST small businesses compare to their GST registered counterparts. Although the cost of purchase (from non-GST and GST registered business) is the same, companies can actually improve their cash flow if they buy from non-GST business as they need not pay upfront for the 6% GST and claim their input tax 3 months later.

Non-GST business is also more competitive in terms of pricing when they sell to end consumers. This is due to the fact that non-GST business will not charge GST on the goods they sell to end consumers. This is as good as giving end consumers a 6% discount over their GST registered counterparts.

Did Chua Tee Yong fail his accounting or intentionally lie when he made the above statement? I call on Chua Tee Yong to immediately retract his statement and apologise to the public as he has misled and confused the public and businesses on GST.

Media Statement by Chong Zhemin, DAP Perak Economic Development Bureau Chief and Political Secretary to the Taiping MP on 17 Aug 2014

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