In a statement today, FMM said it noted with concern recent calls to the government to implement the GST, saying that it was reinforcing its stand that the GST was not appropriate for the country and its implementation should be deferred indefinitely.
"It is significant that Hong Kong SAR, with total trade to gross domestic product (GDP) ratio of 404% and 98% of its businesses are SMEs, had evaluated and abandoned its decision to implement GST.
"Australian businesses have called on their government to reduce GST from 10% to 5% to stimulate economic growth. Malaysia, with total trade to GDP ratio of 220% should earnestly take cognisance of these countries' concerns over the GST and the implications, particularly on consumption and business operating costs," it said.
FMM said the greatest concern of businesses, in particular exporters, was the efficiency of refunds and the International Monetary fund (IMF) had identified the efficiency of the refund mechanism as the Achilles' heel of any GST system.
It said efficiency was dependent on the size of refunds, the manpower to clear the claims and most importantly, the level of confidence in clearing and issuing refunds without carrying out pre-refund audits.
"An indication of the size of refunds in other countries using 2003 statistics is as follows: UK with trade to GDP ratio of 55.5% recorded GST refunds of 60%; and Sweden with trade to GDP ratio of 82.6% had GST refunds as high as 80%," FMM said.
"In view that Malaysia is a highly export-oriented economy (substantial refunds of possibly as high as 58.3%, based on FMM's estimate in 2005), the promise to refund within 14 days could be difficult to fulfill.
"The 14 days might not be achievable when incidences of fraud from thousands of claims for refunds have to be investigated. An inefficient refund mechanism means that large amounts of business cash flow are tied up in input tax credit, which would be a burden on businesses," it said.
FMM said the priority was to control the ever-increasing cost of running the country. "In this respect, reducing wastages/leakages of government expenditure and ensuring better returns and efficiency in utilising public funds as a means to reduce the current deficit should be the priority measure instead of introducing GST, which could hurt economic recovery," it said.