Malaysia is finally joining the e-invoicing bandwagon. It’s not surprising considering that many countries have already implemented or outlined plans to roll out the policy within the next few years.
As early as 2001, Chile has implemented e-invoicing on a voluntary basis. Brazil and Mexico are also early adopters that have successfully implemented e-invoicing. Mexico itself has seen an improved tax collection yield by 48% in a 4-year period starting from 2014 to 2017. In 2021, there are already more than 50 countries that have implemented e-invoicing.
So what is e-invoicing?
E-invoicing in Malaysia allows businesses to issue invoices, digitally generated by a system managed by the Inland Revenue Board (IRB). It works by having a seller submitting the invoice details through the IRB system and obtaining an approved/ verified e-invoice to be given to its customer to complete the sale. The system supports invoices, credit notes, debit notes and receipts. The system will be implemented on a staggered basis, based on the Company’s revenue, starting with large companies, to mid-sized companies and then small-sized companies. It will all be mandatory by January 2027.
There are many advantages. One notable advantage is that the tax return forms can be pre-filled as information are gathered and stored centrally with the IRB. For example, your expenses at the hospital that qualifies for tax relief can be pre-filled in your tax return. On the other hand, businesses may no longer need to keep documents for 7 years in the future.
Great news for those having trouble keeping track of documents / storing documents for many years.
On a broader view, the system improves tax efficiency, transparency and tax compliance. Tax leakages can reduce as there will be better oversight on the shadow economy as well as live monitoring of transactions. It is also a crucial step to full digitalisation in Malaysia. Consider in Latin America’s case, it had also planned for e-match where data of different taxpayers can be cross checked; e-audit where tax audits can be carried out on real time basis etc.
To be better prepared, taxpayers should plan ahead and consider the following:
1. Technology readiness
Businesses are required to submit a structured XML invoice to the IRB’s Application Programming Interface (API) for generating e-invoices. It should be in a prescribed format for the invoice to be successfully validated by the IRB’s system. This may be a challenge especially for taxpayers who are not technology savvy.
For companies with accounting system, there are generally add-ons that can be subscribed to in order to be able to generate invoices in such prescribed invoice format.
Whilst the IRB had communicated that invoices can be issued within seconds, it is still unclear whether bulk invoices can be submitted. Separately, in the event businesses are not able to access the internet or when the system is under maintenance, businesses are required to manually key in the details within 72 hours. This may then create unnecessary administrative burden for the taxpayer.
2. Year end planning
As e-invoicing is on a real time basis, there should also be a clear cut off date and time. Where possible, businesses can plan ahead so that invoices can be raised appropriately, and not accumulated at the very last minute to avoid unpredictable internet / connection issues to the IRB’s platform.
There should not be back dated invoices as well.
Overall, there are many benefits arising from the introduction of e-invoicing in Malaysia. As the IRB embarks on this, it is important for the IRB to ensure that taxpayer’s data are stored securely and minimize any downtime / system issues to ease the entire e-invoice process. On the business front, SME can look forward to the free invoicing solution currently being developed by the IRB. Businesses can also adopt a wait and see approach to learn from the challenges that may be faced by the early adopters, starting in year 2024 and plan ahead in terms of resources and technology requirements.
