KPMG: Prepare for e-invoicing early

PETALING JAYA, 3 April 2023 – The introduction of an electronic invoicing (e-invoicing) system is the indication of the Malaysian government and tax authorities’ digitization advancements. The CEO of IRB, Datuk Dr Mohd Nizom Sairi, was recently quoted to reveal aspirations to implement e-invoicing for businesses as early as the first quarter of 2024.

KPMG’s Head of Tax in Malaysia, Soh Lian Seng, said e-invoicing will improve tax compliance and is a more definitive approach for the government to tackle the huge leakage in taxes arising out of the shadow economy.

He added, “The e-invoicing system will allow for the live monitoring of transactions in companies and render it difficult to under-invoice. Observations out of Italy, which first mandated e-invoicing in 2014, found that its e-invoicing system detected undue VAT credits amounting EUR1.1 billion while VAT payments increased by 3.6% between 2018 and 2019.[1] So, e-invoicing has the potential to reduce tax revenue leakages, a solution that Malaysia sorely needs right now.”

On top of minimizing human errors significantly and potential cost savings, e-invoicing can reduce the time and effort spent by businesses to reconcile and populate data for their year-end financial reporting. At the same time, e-invoicing increases data transparency which gives tax authorities a higher level of confidence as invoices are issued in a standardized way. However, the transition to e-invoicing can become complex if both the government and businesses do not prepare ahead.

“For businesses, proper internal controls are crucial in order for tax risks to be kept to a minimum, which can only be determined through performing a thorough risk review of the company's processes and supply chain system. This encompasses cybersecurity considerations and the necessary training of personnel to be tech savvy,” advised Soh.

Soh also recommended a phased implementation approach by the government, perhaps first introduce for the business-to-government (B2G) segment and the top 300 companies before rolling-out to other segments. This will give small and medium enterprises (SMEs) time to prepare and upgrade their internal systems. The government has already enabled business automation and digitalization among SMEs through the allocation of RM100 million under the SME Digitalization Grant Scheme, as well as a matching grant of up to RM5,000 will be paid to SMEs that subscribe to business digitalization applications such as POS sales systems, accounting, or inventory management.[2]

While these are encouraging initiatives, Soh recommends the government to also consider developing a free e-invoicing platform especially for SMEs, adding, “This will allow SMEs to reduce their business costs of investing in new technology and processes, while also ensuring that SMEs’ digitization of applications is standardized.”  

[1] White paper: Electronic Invoicing in Italy, Agenzia delle Entrate, May 2021

[2] Budget 2023 Speech: Malaysia MADANI, Ministry of Finance Malaysia, 24 February 2023

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