Tax Matters – E-Invoicing: the way forward

THE former finance minister indicated in his October 2022 budget speech that the government will phase out e-invoicing from 2023 onwards. Although the current Minister of Finance made no mention of it in the re-submitted 2023 budget, taxpayers should prepare to issue e-invoices as the government moves towards the digitization of the economy along with the fast-paced digitized business world.

This is the start of the process where filing tax returns is not a separate annual exercise but the data required to complete the tax returns is automatically fed into the system managed by the tax authorities: the Inland Revenue and the Royal Malaysian Customs Board. This is done either in real time by allowing the tax authorities access to your accounting system, or by uploading the data on a regular basis, for example monthly or quarterly.

In fact, tax returns are pre-filled to allow the taxpayer to review and amend them prior to filing.

Adopting e-invoicing is just the first step in digitizing the tax return filing process and minimizing the human intervention/time required to collect post-year data for tax return filing.

Electronic 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-bill?

E-Invoicing is the exchange of an electronic invoice document between the supplier and the buyer in a structured data format that enables its automatic and electronic processing. It should be recognized for tax, legal and contractual purposes and the relevant laws need to be amended to include e-invoices as valid documents.

Why e-bill?

The biggest benefit will be improving compliance and helping tax authorities address the problems of the informal economy that leads to huge tax losses. Shadow economy taxpayers (who don’t pay their taxes) burden the good taxpayers who pay their share of the taxes.

E-invoicing will also bring more transparency to tax authorities, resulting in savings for both parties: tax authorities can save time by eliminating e-invoice verification, and taxpayers don’t have to spend time on tax audits.

Also, taxpayers will see additional savings in terms of data storage and administration costs, as there will no longer be a need to retain such documents as the burden has shifted to the tax authorities.

Are there additional costs for the taxpayer?

There are one-off costs associated with the introduction of the e-invoicing system, as time and costs are incurred in adapting the current digital infrastructure in companies to the requirements of the tax authorities. After the introduction, the benefits of e-billing due to the time saved when dealing with manual data will be significantly greater in the long term.

Our recommendations

It is absolutely essential that authorities give taxpayers reassurance that the data provided is protected and only in exceptional circumstances should tax authorities verify this information.

Very comprehensive guidelines/guides with frequently asked questions should be made available to taxpayers in advance and tax authorities should have a helpdesk to assist taxpayers in tackling any problems they may encounter when implementing the system. There should be clear instructions on how the invoice should be formatted and submitted. There should be transparency on how the data would be processed by the tax authorities.

Tax authorities should develop a free e-invoicing platform for small and medium-sized businesses to reduce or eliminate their costs of accessing the system.

E-invoicing should be phased in, starting in our view with the government-to-business segment and the top 500 companies. This should spread to the other companies over time and eventually to the sole proprietorships.

This article was contributed by Thannees Tax Consulting Services Sdn Bhd, Managing Director SM Thanneermalai ( Tax Matters – E-Invoicing: the way forward

Andrew Schnitker

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