Majority of taxpayers are supportive of e-invoicing but transition is not without challenges

PETALING JAYA, 29 July 2024 – KPMG in Malaysia welcomes the concession announced by the Inland Revenue Board of Malaysia (HASiL) on 26 July 2024, which allows flexibility for taxpayers to issue consolidated e-invoicing for the first six months from the date of mandatory e-invoicing and that no prosecution will be taken under Section 120 of the Income Tax Act 1967 against non-compliance with the e-invoicing rules provided that the taxpayer complies with the consolidated e-invoicing requirements. 

Soh Lian Seng, Head of Tax at KPMG in Malaysia, said: “This is a timely concession because our latest survey has shown that taxpayers are still working through their e-invoicing transition challenges. This development will provide taxpayers with much needed breathing room to ensure the transition to e-invoicing can be completed with minimal impact to operations. This is further evidence that the Malaysian government is listening to the voice on the ground and is willing to support taxpayers in this national momentum towards greater tax governance.”

The market survey Soh referred to was conducted by the professional services firm from 1 to 8 July 2024, which gathered insights from more than 200 respondents comprising large taxpayers (LTPs) and small to medium-sized enterprises (SMEs). The results were discussed at the 24th Edition of the National Tax Conference 2024, moderated by Soh who is also currently the President of the Chartered Tax Institute of Malaysia (CTIM).

In KPMG’s survey, a majority of LTPs (60%) and SMEs (56%) had expressed a desire for the government to provide a no-penalty period during the initial phase of e-invoicing implementation as their top wish list to navigate the complexities of e-invoicing implementation. The same survey found that a majority of LTPs with annual revenues exceeding RM100 million are not fully ready in their e-invoicing implementation by 1 August 2024, which is the compliance deadline mandated by the Inland Revenue of Malaysia (HASiL). Almost 6 in 10 reported being less than 50% prepared, while 30% claim to be more than 50% prepared, and only 4% reported to be fully ready for e-invoicing. 

Despite that, 73% of LTPs expressed their support for the e-invoicing initiative. In the long term, LTPs perceive significant benefits from e-invoicing, such as reduced tax audits and ensuring the completeness and authenticity of documentation (12%), improved ESG ratings due to reduced printing, enhanced compliance, and transparency (8%), and increased operational efficiency (7%). 

However, the survey revealed that this transition is not without its challenges, with the top three factors cited by LTPs to be additional costs for IT systems and gadgets, the need for extra manpower, and system glitches and possible errors. 

One of the primary concerns reported by the survey respondents is the readiness of their systems and processes as companies transition to e-invoicing. Despite best efforts, many are still fine-tuning the technical aspects and ensuring compatibility with their existing infrastructure.

Soh commended HASiL’s approach to motivate taxpayers to push through this challenge with an accelerated capital allowance claim, adding, “Taxpayers who successfully implement e-invoicing as per timeline without using the said concession will be rewarded with accelerated capital allowance claim for qualified capital expenses incurred, such as the purchase of ICT equipment and software packages. This would benefit all taxpayers including the SMEs who are likely to encounter similar implementation challenges, if not more than those experienced by the LTPs, that will require extra consideration.”

KPMG’s survey noted over three-quarters (78%) of SMEs are less than 50% ready for e-invoicing. The primary concern revealed by SMEs is the risk of penalties for non-compliance or unintentional omissions due to unfamiliarity with the new requirements.

Soh highlighted that while e-invoicing promises greater efficiency in the long run, the short-term disruptions necessitate careful management, adding, “Delays in invoice processing and payment cycles will negatively impact cash flow and financial stability. This challenge underscores the crucial role of HASiL in supporting taxpayers during this transition.”

Support from HASiL has been commendable, as a substantial portion of both LTPs (38%) and SMEs (31%) found HASiL’s e-invoicing microsite – with its infographics, FAQs, general guidelines and the Software Development Kit – to be the most helpful resource provided. However, support alone is not enough, and a holistic approach may be required.  

Soh commented, “HASiL has plans to provide free digital solutions such as mobile apps and e-POS between 2024 to 2025 to help SMEs in their transition to e-invoicing. Additionally, we anticipate that HASiL will issue guidelines on the application mechanism for exemptions for MSMEs with turnovers below RM150,000 in due course.”

He also pointed out that taxpayers have been given ample time to prepare for the transition to e-invoicing, which was first announced by the Ministry of Finance (MOF) during the 2024 Budget in October 2023 and should not come as a surprise at this stage. 

“Communicate with your tax professionals,” urged Soh of all taxpayers. “With the mandates for the second and third groups in effect on 1 January 2025 and 1 July 2025 respectively, it’s important for taxpayers to be proactive in addressing potential challenges during their transition. This requires a collaborative effort between taxpayers, tax administrators, and tax advisors.”  

For media-related queries, please email marcom@kpmg.com.my