The goods and services tax (GST) system, which will replace the current sales and service tax (SST) system could provide more room for fraud and leakage with the number of businesses involved to be much higher.

"Under the SST, with only about 20,000 businesses involved, there is already much fraud and leakage. Under GST, the number of parties involved will be more than 200,000 with 100 times more documents," said chairman of the Federation of Malaysian Manufacturers' Task Force on GST, Datuk Lee Ow Kim.

He was speaking in Kuala Lumpur at a GST conference today.

Besides, compliance risk generates significant administation costs to the government and a compliance burden to the businesses, he added.

"Risk includes loss due to fraud/omission, failed businesses, under reporting cash transactions, fraudulent refunds, misclassifying purchases and fictitious or altered invoices," he said.

Instead of increasing its tax revenue, the government could incur loss due to missing trades and fraud, Lee opined.

He also said the UK Government's studies on the system emphasised the loss and leakage issue, citing the UK Customs estimate of the amount lost on Value Added Tax of 11.9 billion pounds in 2002/03.

- Bernama