THE previous finance minister in his Budget speech in October 2022 indicated that the government would be implementing e-Invoicing in phases starting from 2023. Although no mention of this has been made by the current finance minister in the retabled Budget 2023, taxpayers should get ready to issue e-invoices since the government is moving towards digitalising the economy in tandem with the fast-moving digitalised business world.
This is the start of the process whereby filing of tax returns will not be a separate annual exercise, but instead, the data needed to complete the tax returns will be automatically fed into the system managed by the tax authorities: the Inland Revenue Board and the Royal Malaysian Customs Department. This will be done either in real time by allowing the tax authorities to access your accounting system, or by the data being uploaded on a periodic basis, say monthly or quarterly.
Effectively, tax returns are prefilled for the taxpayer to be reviewed and amended before submission.
The introduction of e-invoicing is just the first step towards digitalising the process of filing tax returns and minimising human intervention/time spent in gathering data after the year-end to file the tax returns.
E-invoicing has already been introduced in many countries such as Chile, Hungary, the Philippines, Thailand, New Zealand, Japan, France and South Korea.
What is e-invoicing?
E-invoicing is the exchange of an electronic invoice document in a structured data format between the supplier and the buyer, which allows for its automatic and electronic processing. It should be recognised for tax, legal and contractual purposes, and the appropriate laws have to be amended to accommodate e-invoices as valid documents.
The biggest benefit will be the improvement of compliance and it will help the tax authorities in tackling the issues of the shadow economy which results in a huge leakage in taxes. Taxpayers involved in the shadow economy/black economy (those who do not pay their taxes) are a burden to the good taxpayers who are bearing their share of the taxes.
E-invoicing will also bring in greater transparency to the tax authorities and this will result in savings to both parties: tax authorities can save time by eliminating the auditing of e-invoices, and taxpayers need not incur time attending to tax audits.
There will also be additional savings to taxpayers in the form of data storage and management costs since there will not be a requirement to keep such documents as the burden has been passed to the tax authorities.
Will taxpayers incur additional costs?
There will be a one-time cost at the introduction of the e-invoicing system because there will be a need to incur time and costs to modify the current digital infrastructure within businesses to synchronise with the requirements of the tax authorities. After the introduction, the benefits of e-invoicing through the time saved in dealing with manual data will be far greater in the long run.
It is absolutely important for the authorities to provide assurance to the taxpayers that the data provided will be protected, and only in rare exceptional circumstances the tax authorities should audit this information.
Very comprehensive guidelines/frequently asked questions guide should be provided to taxpayers upfront, and the tax authorities should have a helpdesk to assist taxpayers to deal with problems they will face when implementing the system. There should be clear instructions on how the invoice should be formatted and transmitted. There should be transparency on how the data would be processed by the tax authorities.
The tax authorities should develop a free e-invoicing platform for small and medium companies to reduce or eliminate their costs of entering the system.
E-invoicing should be introduced in stages and our view is that it should start in the “government-to-business” segment and the top 500 companies. This should cascade down over a period of time to the other businesses, and lastly, to the sole proprietors.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).