(July 30): E-invoicing has quickly become a pressing concern for business owners, with even well-established companies facing significant hurdles. Feedback from the ground reveals that large companies, those with annual revenues exceeding RM100 million in the first phase of e-invoice implementation, are struggling to integrate new systems with their existing processes — a task more complex than anticipated.
In response, the Inland Revenue Board has granted a six-month grace period following the Aug 1 deadline. It's crucial to understand that this is not a postponement, but rather a grace period designed to ensure a smoother transition. Businesses are still required to comply with e-invoicing mandates during this period.
This adjustment phase, aligning with the compulsory roll-out of e-invoicing, allows all businesses to consolidate their transactions into a single e-invoice. However, this shift also brings to the surface some considerable challenges, as the adoption of e-invoicing requires significant updates to accounting systems to integrate with the MyInvois portal, extensive training of operational staff and revisions of operational procedures.
Under the roll-out plan, businesses with revenues between RM25 million and RM100 million must implement e-invoicing by Jan 1 next year, and all other businesses by July 1. Recognising the difficulty for small businesses to comply with the requirements, the government has recently announced a threshold, exempting micro, small and medium enterprises (MSMEs) with annual revenues not exceeding RM150,000 from adopting e-invoicing.
While this exemption provides relief for many in this category, many other SMEs may still not be ready. Consequently, while the grace period provides some relief, it might unintentionally be perceived by SME businesses as merely delaying the inevitable rather than facilitating a necessary transition.
This misconception could lead to compliance delays, particularly for businesses scheduled for the second and third phases of the regulation. If large businesses with more resources are finding the transition challenging, then the situation is even more daunting for SMEs, which have far fewer resources at their disposal to meet these new requirements.
As this additional support now also encompasses the largest companies struggling with similar implementation challenges, a pivotal question remains: Can SME businesses adequately prepare in time, just like their larger counterparts?
Challenges facing smaller SMEs
While the phased implementation allows for a gradual adjustment, smaller SMEs may still encounter several hurdles:
1. Limited technological infrastructure
Many small and micro enterprises operate with minimal technological infrastructure. Unlike larger corporations that have dedicated information technology departments and substantial budgets for technological upgrades, smaller SMEs often rely on basic accounting software or even manual book-keeping. Transitioning to an e-invoicing system requires investments in new software, training for employees, and potentially upgrading existing hardware — all of which can be financially and logistically daunting for smaller businesses.
2. Lack of awareness and expertise
The knowledge gap is another significant barrier. Smaller SMEs may lack awareness of the e-invoicing requirements and the benefits of digital transformation. Even when they are aware, the technical expertise required to implement and maintain an e-invoicing system can be a substantial hurdle. Without adequate guidance and support, these businesses might struggle to comply effectively with the new regulations.
The e-invoice guidelines are not so straightforward for SME business owners. They need to learn about the specific technical areas, including:
- Self-billed e-invoice: Understanding how to generate and manage self-billed e-invoices, where the invoice is created by the buyer instead of the seller.
- 55 fields: Familiarising themselves with the 55 mandatory fields that need to be included in an e-invoice, ensuring all necessary information is accurately captured.
- Consolidated e-invoice: Learning how to prepare and manage consolidated e-invoices, which combine multiple transactions into a single invoice for easier management and tracking.
- Proof of expenses: Understanding how to generate and manage proof of expenses through e-invoices, ensuring that all business expenses are properly documented and accounted for.
- Proof of income: Learning how to use e-invoices to generate proof of income, providing clear documentation of sales and revenue for financial and tax purposes.
- Staff claims e-invoice: Understanding how to generate and manage e-invoices for staff claims, including detailed expense information, employee details, and supporting documents.
- Reimbursement and disbursement e-invoice: Learning to create e-invoices that cover both reimbursements (for expenses paid by employees) and disbursements (expenses paid directly by the company), detailing each transaction’s purpose, the recipient's information, and payment specifics, including transactions involving related parties to ensure transparency and compliance with Malaysian regulations.
3. Financial constraints
Financial limitations pose a critical challenge for SMEs. The cost of implementing an e-invoicing system, including purchasing software, training staff, and possibly hiring external consultants, can be prohibitive. For many SMEs, especially those still recovering from the economic impact of the Covid-19 pandemic, prioritising such investments can be challenging.
Conclusion
While e-invoicing significantly contributes to combating the shadow economy and advancing digital transformation, it also presents substantial challenges for SMEs. Many SMEs are concerned about the potential for severe fines and penalties, despite reassurances from the authorities.
In response, the Malaysian government has structured a phased implementation of e-invoicing to include businesses of all sizes, but smaller SMEs still face specific challenges that might impede their compliance.
Given these complexities, another approach could involve leveraging industry associations and chambers of commerce to support SMEs in the transition. These organisations can play a pivotal role in disseminating information, providing training, and fostering peer-to-peer learning among businesses.
The collective effort of industry bodies, coupled with targeted government initiatives, could create a more robust support system for SMEs to navigate the e-invoicing landscape effectively. This collaborative strategy could enhance readiness and compliance, ensuring that the benefits of e-invoicing are realised across all business sectors without disproportionately burdening smaller enterprises.
Datin Yap Shin Siang is the chief executive officer of the YYC Group