“The IBR finds 56% of real estate and construction business leaders around the world expecting their revenues to climb over the next 12 months, up from 49% over the past quarter,” said Sian Sinclair, the Global Industry Leader - Real Estate & Construction of Grant Thornton.

Kuala Lumpur, 11 August 2014: The recovery in the real estate and construction sector is picking up pace. Results from our Q2 International Business Report (IBR) not only show a sharp increase in revenue expectations globally but also that businesses around the world are investing in productivity to unlock the growth potential in their operations.

“The IBR finds 56% of real estate and construction business leaders around the world expecting their revenues to climb over the next 12 months, up from 49% over the past quarter,” said Sian Sinclair, the Global Industry Leader - Real Estate & Construction of Grant Thornton. 

Real estate and construction business leaders are planning for the future, taking a two-pronged approach to boosting productivity, raising their long-term growth potential.

 SJ Grant Thornton’s specialist GST practice has reviewed the orders and regulations and consider that the headline items are:

“Firstly, real estate and construction businesses are investing in the technology at their disposal: 49% are planning to increase investment in plant and machinery over the year ahead,” she said.

“This new investment - which could be anything from tools and machines to software and computers - raises productivity by allowing existing processes to be achieved faster or more efficiently, or indeed by expanding the products or services a company can offer,” she explained.

“Secondly, sector business are looking at how to better encourage their existing workforce to work more efficiently: 54% are planning to incentivise productivity improvements over the next 12 months,” she added.

“Incentive structures can take many forms, such as sales or build targets, or perhaps profit sharing, but the key is trying to drive your people to achieve greater things with the resources currently available,” said Sian. 

Impact of GST to the Malaysian Property Industry

GST is a value added tax imposed on every domestic consumption charged on all taxable supplies of goods and services consumed in Malaysia except those specifically exempted or classified as out-of-scope. Accordingly, GST would have to be paid throughout every level of production and distribution process and finally passed on to the final consumer.

In the Property Development and Construction businesses, all supplies of construction services will be subject to GST at 6% and all supplies of commercial property and land will be subject to GST at 6%.

For exemptions, all supplies of residential property and land to be used for residential development will be exempted from GST. Religious buildings, burial grounds and agricultural land are also exempted from GST.

What are the business implications?

The implementation of GST creates several opportunities and challenges for businesses in the construction developers of commercial property.

Opportunities

The Property Development and Construction businesses can look forward to several opportunities that arise from the implementation of GST.

“These Property Development and Construction businesses will be able to reclaim all GST incurred on costs in the course and furtherance of their business, other than designated blocked items,” said Lorraine Parkin, the Senior Executive Director for GST, Grant Thornton.

“Besides that, input tax can be claimed on an accruals basis, benefitting cash flow. GST relief can be claimed on bad debts 6 months after the tax point, benefitting cash flow,” she added.

“GST groups can be applied for, subject to certain criteria being met, which allow all intra group supplies to be disregarded for GST purposes. A GST group consists of two or more business entities that operate as a single business for GST purposes and this can have several advantages, including cash flow, reduced compliance costs, and reduced likelihood of mistakes and penalties,” said Lorraine.

“Contracts with both suppliers and customers might meet the criteria to benefit from transitional relief and be taxable a 0% for up to 5 years (zero-rate),” she said.

The relief provides for zero rating of the payment under a contract for a period of 5 years from 1 April 2015 or until a review opportunity arises, whichever is earlier. Essentially, this relief will allow the supplier to avoid liability for GST on supplies and claim input tax credits for acquisitions in making supplies (i.e. cost of land and construction costs).

“With careful time of supply planning, coupled with sensible accounts receivable terms, should see businesses in receipt of GST from their customers before they have to pay it over to the Royal Customs,” she added.

Lastly, businesses may be eligible for Sales Tax refunds. 

Challenges

Businesses need to ensure that their contacts allow them include GST clauses to their sales and rents agreement, otherwise businesses making taxable supplies at the standard rate could see their profits decreasing by 5.66% if they have to account for GST out of their receipts.

“Hidden GST cost” may occur in residential developments as developers will not be able to reclaim the GST incurred on the running costs of the businesses. This may have an impact on the profit or will alter the unit value of residential premises.

Business making mixed supplies will need to consider a partial exemption recovery method and be prepared to undertake capital goods adjustments.

What should Property and Construction businesses being doing right now?

There are several measures that businesses should be doing to reap the benefits of GST.

“First and most importantly, the Property and Construction businesses are urged to register for GST if liable to do so before the 1 January 2015 deadline,” said Lorraine.

“Businesses should also consider applying for a GST group, if appropriate to benefit its advantages as mentioned,” she added.

“Businesses should ensure that their accounting systems are capable, or adapted to be capable, of filing accurate GST returns and payments. They should also ensure proper tax invoices can be issued for supplies subject to GST and that proper tax invoices are received” she said.

“Some property and construction businesses may already have tax clauses in their contracts that provide for the addition of GST or similar taxes. However, many businesses will not have adequate clauses. Therefore, most property and construction businesses should be considering the addition of GST clauses to their contracts,” said Lorraine.

Besides that, they should understand how the transitional provisions apply to and possibly benefit the business and lastly, prepare for a Sales Tax stock take if applicable.

 

For more information please contact:

Sharon Sung, Technical and Corporate Affairs Partner, T  +60 3 2692 4022, 

sharon.sung@my.gt.com

 

Charmane Koh, Corporate Affairs Assistant Manager, T  +60 3 2692 4022, 

charmane.koh@my.gt.com