This article first appeared in Digital Edge, The Edge Malaysia Weekly on June 24, 2024 - June 30, 2024

As the Aug 1 deadline approaches for the first batch of taxpayers — those with an annual turnover of RM100 million and above — to adopt e-invoicing for all their transactions, smaller businesses are bracing for their turn on Jan 1 and July 1 next year. However, concerns over this are already surfacing among companies and industry groups.

Last year, the Inland Revenue Board (IRB) unveiled a three-phase plan to make e-invoicing mandatory for all businesses by July 2025. This initiative requires all companies — from micro, small and medium enterprises (MSMEs) to large corporations — operating in the country to adopt e-invoicing and integrate into the IRB’s MyInvois system.

The e-invoicing system was introduced specifically to help the government achieve its 2024 tax collection target of RM185 billion by improving the efficiency of the country’s tax administration and compliance. It has been reported that the implementation of the system is projected to increase tax revenue contribution to between 14% and 15% of the country’s gross domestic product.

With this move, Malaysia will join 40 other countries in implementing e-invoicing, as part of its broader efforts to modernise and digitalise its economy.

However, Datuk William Ng, national president of the Small and Medium Enterprises Association (Samenta), says the interconnected nature of supply chains means that even the smaller companies need to be prepared by Aug 1 to ensure seamless transactions.

“We are concerned with the poor readiness of SMEs, despite the first batch of taxpayers being expected to be issuing e-invoices by Aug 1. We must remember that the supply chain is interconnected, meaning that even SMEs will be expected by larger businesses to issue e-invoices to complete the continuous transaction control loop,” he explains.

The purpose of the e-invoicing regime is to quicken companies’ digitalisation process as part of the government’s road map. It will help to streamline the review, approval, archiving, accounting and compliance process of a company’s invoicing system.

“[The e-invoicing regime] closes the gap on tax evasions and the shadow economy. This, in turn, will even the playing field for genuine, tax-compliant businesses,” says Ng.

Although Samenta, as well as industry stakeholders such as SME Corp, Funding Societies Malaysia and larger SMEs acknowledge the benefits that e-invoicing will bring — such as added operational efficiency in the automation of invoicing processes, leading to reduced errors, faster transaction times and cost savings, as well as financial inclusion via access to credit with accurate and verifiable financial records — insufficient resources may hamper adoption among the MSMEs.

“Larger companies with robust enterprise systems and processes as well as sufficient resources to refer to the relevant experts will be better equipped for the new implementation,” says Norazlam Norbi, CEO of Sumisaujana TCM Chemicals Sdn Bhd, an oil and gas provider.

Sumisaujana’s growth and focus on expanding with technological advancements have already led to the company taking the steps needed to prepare for the e-invoicing mandate, he adds.

“We invested in an enterprise resource planning (ERP) system, which successfully went live in 2023, just in time for us to focus on the e-invoicing implementation as the ERP software enables direct integration via [the IRB’s Application Programming Interface (API) to be a part of the MyInvois system].

“However, micro-businesses, especially the ones that practise manual processes with high amounts of transaction volume, may find it more challenging to adopt e-invoices in their system,” says Norazlam.

Louis Looi, operations manager of Frozen Ice Cream, an MSME, is struggling with the preparations for e-invoicing adoption due to the higher operational and business costs involved.

“We are concerned about whether we will be able to take on this extra responsibility of e-invoicing given the labour crunch and high turnover in our industry. This may also increase our costs, and with high [staff] turnover, we are also worried whether new employees may make a mistake, which may result in us being penalised,” he says.

According to Looi, as a company in the food and beverage industry, Frozen Ice Cream already has many compliance issues — food safety, hygiene and cold chain logistics, among many others — to worry about. The added concern of having to comply with the e-invoicing requirement is overwhelming for smaller businesses, making it difficult to focus on their customers.

Chai Kien Poon, country head of Funding Societies Malaysia, says when it comes to adopting e-invoicing, Malaysia has the advantage of learning from other countries. So, to help the smaller companies, he suggests that the IRB conduct pilot programmes for the MSMEs while the larger enterprises are adopting e-invoicing.

“[We can then] use this feedback to make the necessary adjustments and devise comprehensive support, including training programmes, webinars and a dedicated support team to help businesses understand and comply with the e-invoicing requirements before the broader rollout by July 2025,” he says.

“MSMEs need to ensure that they engage with the right advisers. They have until January 2025. As such, if they start now, they will have sufficient time,” says Datuk Muhamad Guntor Tobeng, managing director of Gading Kencana Sdn Bhd.

An SME in the solar industry, Gading Kencana embraced digitalisation in its business processes a year ago with the automation of its accounting function. Because of this, it is confident that it will be ready to adopt e-invoicing by the deadline.

“We have engaged with our advisers and are reviewing this firstly from the perspective of business processes and secondly from the perspective of technology,” says Muhamad Guntor.

For Sumisaujana’s Norazlam, in working with its own deadline, his company had set up a special project team involving various departments to prepare for e-invoicing implementation.

“Some of our key focus areas include, but are not limited to, gathering the required data fields of e-invoices from our customers and suppliers in accordance with IRB’s e-invoicing guidelines, liaising with our ERP software providers on the system’s pilot testing on the IRB portal, consulting our tax agents on any areas that require clarifications or updating ourselves with the latest e-invoicing developments from the IRB, signing up for workshops to train and educate our staff with the necessary knowledge as well as engaging with our stakeholders on what needs to be in place once e-invoicing comes into effect,” says Norazlam.

Sumisaujana is finalising the internal data that is required for implementation, which includes preparation for the API system and the process of collating information from all stakeholders.

In contrast, Looi’s small company has yet to even start to prepare for implementation, and he is not confident that one year is enough. He says his company is waiting to see how the others are going to do it before planning accordingly.

Samenta’s Ng is not just worried about MSMEs that may struggle to cover the additional expenses needed to take the digitalisation journey, but also businesses run by the elderly and those who are not knowledgeable enough about tech to understand how e-invoicing works.

“We must remember that e-invoicing is not just a matter of learning how to issue the invoice online — even if there’s a free-to-use portal. It will impact operations and add an additional layer of complexity to doing business,” he continues.

Ng is concerned over the blanket implementation, which covers even micro enterprises. “We have called for small traders with revenue of under RM300,000 to be exempted from the e-invoicing regime. These small traders include the elderly or less literate Malaysians who will not be able to cope with the e-invoicing regime.”

Funding Societies Malaysia’s Chai points out that micro businesses tend to focus primarily on their day-to-day business operations. “Often, issues of compliance and the need to adopt digital solutions are secondary considerations for them.”

Chai believes, however, that the adoption of e-invoicing is very much achievable even for micro enterprises, as Funding Societies Malaysia has seen it work elsewhere. “The experiences from other countries demonstrate that with the right tools and support, even micro businesses can adopt e-invoicing. The key is to make it simple for them to file and ensure that they understand the process and its benefits, including offering tax breaks, simplified tax fillings or incentives for micro businesses that comply.”

Larger companies such as Sumisaujana and Gading Kencana have their own set of challenges they are working to overcome.

“One of the biggest challenges for us is the ambiguity in terms of the process of manual submissions into the MyInvois Portal via the Pilot Company Programme,” says Norazlam.

“Moving towards the implementation of e-invoicing, we foresee that this may affect the timeliness of our preparation, which includes providing ample training to our personnel, for both submission options — manually and [through the] system. This is especially because we mostly deal with foreign customers and foreign suppliers that practise the self-billed method,” he adds.

In order to properly prepare for the adoption of e-invoicing, Sumisaujana has had to invest quite heavily in additional personnel in areas such as IT, ERP, finance and supply chain in a very short period of time.

“We have also had to retrain a large number of our personnel to be literate in this new system. This obviously requires a big investment in a very compact timeline, which does put a strain on our growth plans,” says Norazlam.

While the IRB’s three-phase plan was designed to provide ample time to those with lower annual turnover to prepare for e-invoicing, MSMEs are often part of the supply chain for larger companies, leading to some overlap and potential issues arising, reiterates Ng.

“We understand that e-invoices are not needed for proof of expenses in tax submission but many larger businesses have already sent out notices to their vendors, including SMEs to comply and issue e-invoices or face potential delisting,” says Ng.

Because of this, the IRB will have to set out stronger directives to the first batch of taxpayers; otherwise, this will create a process vacuum that can hurt SMEs, Ng continues. “We will be working closely with the IRB to ease this transition for SMEs. We urge SMEs to take immediate steps to understand and prepare for e-invoicing well ahead of the July 1, 2025 deadline.”

With the expected wider impact of the first phase of the rollout, Funding Societies Malaysia predicts that the timeline may see some changes. “I suspect there may be a chance of a timeline revision for micro to small businesses as we gain insights from the rollout among the larger businesses,” says Chai.

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