DIGITAL TRANSFORMATION VITAL FOR SMES TO OFFSET INCREASED COSTS FROM SERVICE TAX HIKE - ICAEW

KUALA LUMPUR, July 16 (Bernama) – Digital transformation is essential for small and medium enterprises (SMES) to offset the increased costs from the hike in the service tax, according to the Institute of Chartered Accountants in England and Wales (ICAEW).

Adopting technologies such as data analytics and artificial intelligence can also offer valuable insights into market trends and consumer behaviour, helping SMEs make more informed decisions, Joon Teoh, who is chief executive officer of finance consulting firm AGOS Asia, said in a statement issued jointly by several ICAEW members today.

With the service tax raised to 8.0 per cent from 6.0 per cent effective March 1, 2024, Teoh said SMEs should focus on revenue generation rather than getting bogged down by administrative processes.

“Support mechanisms from the government will be crucial in ensuring SMEs continue to contribute significantly to Malaysia’s economic growth,” she said, adding that they should be prioritising delivering value even if it means adjusting their prices.

Beetle Knight Advisory manager Chia Yee Shin said industries heavily reliant on taxable services and goods such as hospitality, retail, construction, telecommunications, healthcare and professional services, will face heightened operational costs.

Exploring new markets or products and services less affected by the tax increase can also provide new revenue streams.

Chia said businesses should understand tax implications and ensure their software and hardware are updated while educating staff to collaborate effectively in producing necessary compliance documentation is also essential.

Embracing Industry 4.0 (IR4.0) technologies is also a key strategy, though Teoh cautions that technology alone is not a panacea.

"People play an equally important role in enabling technological changes, and a shift in mindset is paramount for fully embracing IR4.0,” she said.

Steven Chong, managing partner of accounting firm Morison LC, said that while the service tax is meant to be a 'pass through' cost from the service provider to the consumer, some businesses may choose to absorb the increase to remain price competitive, which could be detrimental, especially for those with thin profit margins.

Chong also suggested that businesses review their service tax position to understand if their services are entitled to exemptions, which could lower their costs.

-- BERNAMA