MALAYSIA’S e-invoicing regime, which commenced on Aug 1, 2024, is no longer merely a “future compliance” exercise. Today, the majority of medium and large businesses are already within the system.
Most taxpayers now understand the basic mechanics of e-invoicing. They know how to issue an e-invoice, validate transactions and use the MyInvois platform. However, many businesses are adopting their own interpretations and practices which may not necessarily comply with the requirements issued by the Inland Revenue Board (IRB).
This is where taxpayers need to be extremely careful. A practice which may appear operationally convenient may amount to non-compliance under the e-invoicing framework. During an audit or review exercise, the IRB will not merely examine whether an invoice exists, but will also assess whether the transaction was treated correctly under the applicable e-invoicing guidelines and rules.
IRB already using e-invoice data
The IRB now has unprecedented visibility over business transactions and is able to analyse data on a real-time basis. Recently, the IRB announced that reviews conducted using e-invoice data uncovered RM3.5 billion of previously unreported income involving 38,906 taxpayers, with RM760.7 million in taxes payable.
The authorities also disclosed that since the implementation of e-invoicing began, more than 225,000 taxpayers have issued about 1.3 billion e-invoices nationwide.
The government has provided implementation deferments and relaxation measures for smaller businesses to ease the transition. Businesses with annual turnover below RM1 million are currently exempted, while taxpayers with annual turnover between RM1 million and RM5 million have been granted a deferment until Dec 31, 2027.
However, this should not be misunderstood as a relaxation of enforcement for taxpayers who are already within the system.
Common mistakes businesses are making
One major issue relates to the misuse of self-billed e-invoices. There appears to be an increasing tendency for taxpayers to resort to self-billing whenever suppliers are unable or unwilling to issue e-invoices, or where supporting documentation is incomplete.
However, self-billed e-invoices are only permitted in specific circumstances prescribed under the guidelines. They are not intended to be used merely because supporting documents are unavailable or because operational challenges arise.
Another common mistake involves the incorrect use of consolidated e-invoices. Some businesses continue consolidating transactions beyond the relaxation period which may no longer qualify under the guidelines, particularly for transactions where consolidated e-invoices are not permitted, such as transactions exceeding RM10,000.
Errors are also commonly seen in transactions involving balance sheet items such as deposits, reimbursements, intercompany charges, director-related expenses, staff claims and cross-border payments.
Risks may surface much later
The danger is that many of these issues may only surface years later during a tax audit exercise. At that stage, the exposure may not merely involve technical corrections, but businesses may potentially face penalties of up to RM20,000 per offence for non-compliance.
What businesses must understand is that the current cases detected are probably only the tip of the iceberg. As the IRB’s data analytics capabilities become more sophisticated, more discrepancies and unusual transaction patterns are likely to be identified over time.
Businesses should therefore take the opportunity now to carefully review their e-invoicing practices, especially where temporary workarounds or operational shortcuts were adopted during implementation.
Review and regularise before an audit
If weaknesses or errors are identified, it is absolutely important to regularise the position voluntarily before the authorities commence an audit review. IRB will be accommodative where taxpayers proactively come forward to correct mistakes and make voluntary disclosures.
The real challenge with e-invoicing is no longer implementation, but ensuring that the treatment adopted is technically correct, defensible and fully compliant.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
