(June 5): Wars and geopolitical tensions have made rising prices a global phenomenon. Consumers are concerned about energy/fuel prices, inflation and ultimately the cost of living. Many industries are also under pressure due to rising material and operational costs as well as new sources of competition. The government is entrusted to make decisions for the people and economy on issues like interest rate while also making decisions for its own fiscal sustainability.
Raising taxes disproportionately may kill the golden goose, i.e. act as a disincentive for good, compliant taxpayers. Hence, the Malaysian Government has embarked on programmes like e-Invoicing to get everyone to pay their fair share of tax, instead of overburdening a few segments of compliant taxpayers.
e-Invoicing, as recently legislated in the Income Tax Act 1967, requires businesses to electronically submit some 55 data fields of an invoice to the Inland Revenue Board of Malaysia (IRBM/LHDNM) for validation prior to issuance of the invoice to the customers of the business. The Act does not regulate the mode in which the invoice is shared by a business to its customers. Hence, in principle, a business may still share with its customer a printed copy of the invoice (inclusive of particulars of IRBM validation such as a QR code) — but it is more likely that many businesses would choose to share the invoice to its customers electronically for operational and commercial reasons advocated by the Malaysian Digital Economy Corporation (MDEC).
In short, implementation of e-Invoicing by the Inland Revenue Board of Malaysia (IRBM) results in the tax authority having a real time digital record of the transactions and hence it ensures ‘compliance by design’. Given the benefits, the IRBM has committed to an ambitious journey with implementation date of August 1 this year for larger businesses with annual turnover exceeding RM100 million, January 1 next year for businesses with annual turnover between RM25 million and RM50 million and finally July 1 next year for all taxpayers (including micro enterprises such as sole proprietors and freelancers carrying on a business).
The necessary legal provisions to mandate e-Invoicing have been passed in Parliament, multiple guidelines published by IRBM since 2023 and most recently the sandbox environment for testing of software application performance interface (API) has been launched in April this year. Businesses enrolled in the pilot program are allowed to issue e-Invoices to customers with IRBM validation and QR code from May 24.
Businesses do not just issue e-Invoices to their customers. There are prescribed situations in which a business must issue a self-billed e-Invoice to its vendor (or payee). This includes payments to Agents, Dealers and Distributors (ADDs), e-commerce transactions and any payment to an individual who is not carrying on a business. Hence, the IRBM would have a good amount of digital footprint of odd income, casual income or gig economy income earned by an individual.
Of course, consumers do not have to produce their taxpayer identification number while purchasing grocery items. Most consumer facing industries qualify for an exemption from having to collect the customer’s information to issue a transactional e-Invoice. Instead, the business operator is required to lodge a consolidated e-Invoice on a monthly basis with the particulars of its sales with the general public (without customer particulars). Understandably, this concession is not available when one purchases a car or renovates a house; in which case it is mandatory for the business operator to collect customer information and issue a transactional e-Invoice and, as a result, IRBM would have details of ‘life and means’ of an individual even prior to commencing a tax audit exercise.
It is reasonable to expect that IRBM would employ analytical tools and possibly even AI to better profile and channel its resources to conduct tax audits. These digital tools are expected to improve efficiency and effectiveness of tax audits.
Ensuring everyone pays the right amount of tax (as required by the present tax law) also means lowering the need for imposition of new taxes on businesses or consumers. Hence, it is an organic way to improve Malaysia’s tax-to-GDP ratio, which is often debated for being one of the lowest in the region.
Certainly, businesses have a lot of preparatory work during the coming months given the transactional nature of e-Invoicing — which even extends to non-monetary transactions. There is no one-size-fits-all solution for e-Invoicing. Successful implementation requires a multidisciplinary approach with commitment for continuous improvement.
Ultimately, it is hoped that all the hard work put in by the Government and business operators bears fruit for the people of Malaysia as better compliance could mean ‘no new taxes’ during the upcoming years amid the challenging geopolitical climate.
Thenesh Kannaa is Executive Director of TRATAX Sdn Bhd, a consulting firm specialising in taxation. He is also the Chair of the Chartered Tax Institute of Malaysia (CTIM)’s Technical Committee on Direct Tax, a member of ACCA’s expert panel on taxation and a member of the International Fiscal Association (IFA)’s Malaysian exco. He may be reached at [email protected]