E-INVOICING is currently the key priority of the Inland Revenue Board (IRB).
The principal benefit of e-invoicing is the potential increase in tax revenues through increased compliance because all businesses must mandatorily participate in this exercise. The secondary benefit will be to close the current leakages that are occurring through non-invoicing which has a consequent effect of reducing the size of the black economy. The e-invoicing initiative aligns Malaysia with the rest of the world in digitalising our information flow between the government and the taxpayers.
Although the e-invoicing initiative was announced in the middle of last year, businesses appear not to have given serious thought on commencing the e-invoicing implementation process which is coming up in stages starting on Aug 1, 2024 for companies with a turnover exceeding RM100 million and the deadline falls on July 1, 2025. Many businesses are taking a mistaken view that their problems will be solved through purchasing the necessary software or upgrading their existing software.
Unfortunately, that is not the case. The software will assist you collect and transmit the data, but it may not be able to decipher your transactions and decide on the type of documents that needs to be generated.
There are principally two parts to this exercise:
First, there is a necessity to map out your transactions and ensure that every transaction is accounted for through the correct document which is confined to an invoice, credit note, debit note and refund note. The e-invoicing system does not allow any other documents.
Second, the software comes in to play and it provides you the interface to feed the data into the IRB’s e-invoicing portal.
Issues you need to address at the early stage
There are specific rules in the e-invoicing framework, which is fundamentally different from the current invoicing process. Examples would be to identify transactions which require self-billing and this is required when goods and services are acquired from overseas suppliers, commissions paid to agents, staff claims, goods and services acquired from individuals, etc.
Certain transactions will be exempted from issuing e-invoicing and they include employment income, pensions, zakat, fitrah and scholarships. Government agencies do not need to issue e-invoices. However, businesses dealing with government agencies are still required to issue e-invoices to them.
There are currently transactions for which you would not have issued invoices, but instead you would merely record the entries within your accounts. You need to identify such transactions and obtain a resolution to such transactions, because the e-invoicing system requires all transactions to be documented through this system. It cannot remain opaque.
B2C businesses are involved in issuing large volume of invoices. In such circumstances, you may need to work out mechanisms with the IRB to reduce your workload through submitting a consolidated e-invoice.
You need to review all your transactions and ensure they are covered within the e-invoice system. If there are anomalies, you need to seek advice from the IRB as to accommodate your transaction within the e-invoicing system. All of this takes time.
An important part of the e-invoicing system is to collect compulsorily 51 data fields and there is an additional 12 data fields. To do this, you need to look at your internal processes which will be beyond the finance department’s responsibility to acquire and process the data for your existing connections and the new connections you will have in the future. You may need to set up new standard operating procedures and this may involve other departments such as procurement, production, etc.
Simultaneously, you need to also review your digital capabilities, especially the current software you are using. There may be a need to upgrade your software or buy newer version of the software to cope with the IRB’s requirements.
It will easily take four to six months to get yourselves ready to enter the e-invoicing system. If you are due to participate either on Aug 1, 2024 or Jan 1, 2025, time is running out.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).