The introduction of an electronic invoicing (e-invoicing) system for businesses will improve tax compliance, said KPMG Tax Services Sdn Bhd.
Its head of tax Soh Lian Seng said the system is a more definitive approach for the government to address the huge leakage in taxes arising out of the shadow economy.
He said the system would 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 value-added tax (VAT) credits amounting to 1.1 billion euro while VAT payments increased by 3.6 per cent between 2018 and 2019.
“So, e-invoicing has the potential to reduce tax revenue leakages, a solution that Malaysia sorely needs now,” he said in a statement today.
KPMG said that on top of minimising human errors significantly and potential cost savings, e-invoicing could reduce the time and effort spent by businesses to reconcile and populate data for their year-end financial reporting.
At the same time, the system would increase data transparency which gives tax authorities a higher level of confidence as invoices are issued in a standardised way, it said.
However, the transition to e-invoicing could become complex if both the government and businesses do not prepare ahead, it noted.
“For businesses, proper internal controls are crucial 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,” Soh said.
He urged the government to introduce a phased implementation approach, perhaps for the business-to-government segment and the top 300 companies first before rolling out the system to other segments.
This approach would give small and medium enterprises (SMEs) time to prepare and upgrade their internal systems, he said.
“The government has already enabled business automation and digitalisation among SMEs through the allocation of RM100 million under the SME Digitalisation Grant Scheme.
“Under the scheme, a matching grant of up to RM5,000 will be provided to SMEs that subscribe to business digitalisation applications such as point of sale systems, accounting or inventory management,” he said.
Soh also urged the government to consider developing a free e-invoicing platform, especially for SMEs, as this would reduce their costs of investing in new technology and processes while ensuring that SMEs’ digitalisation of applications is standardised.
