Despite the digital age ushering in unprecedented opportunities, a stark reality remains – businesses, especially SMEs, are falling behind in embracing new technologies and software. The question that looms large is: Why is it proving to be challenging for these businesses to adhere to the government’s mandates?
This reluctance to adapt was evident in June 2022 when reports surfaced that more than 31,000 entities, ranging from individuals and businesses to companies and various entities, failed to declare their income. The repercussions were staggering, resulting in tax losses of an estimated sum of RM665 million. Adding to the complexity is the perennial issue of constant changes in government regulations, presenting an ongoing challenge for businesses to adapt swiftly to sudden shifts. From new tax frameworks to revised regulations, the ever-evolving landscape demands agile adaptability, leaving
businesses grappling to keep up.
As various countries across Asia eagerly embrace this digital evolution, the spotlight now turns to Malaysia and the crucial strides it must take to keep pace with the dynamic shifts in the global economic landscape.
Global VS Malaysia’s E-Invoicing Landscape
Countries across Asia, including Japan, Vietnam, South Korea, and the Philippines, have embraced e- invoicing since 2021, following a global trend. Singapore on the other hand has been practising e-invoicing since 2019, with the Infocomm Media Development Authority (IMDA) leading the charge by becoming the first Peppol Authority outside of Europe in May 2018 [2].
With Singapore leading the way, the question arises: Is Malaysia falling behind?
E-invoicing in Malaysia has been permitted since 2015, aligned with the implementation of GST laws supporting indirect taxation yet businesses were choosing traditional invoicing. Marked by paper-based processes and manual documentation, traditional invoicing has long been the norm. However, this conventional approach presents inherent drawbacks, including delays, errors, and heightened operational costs. Recognising the opportunities and efficiencies offered by e-invoicing, Malaysia made a significant move in March 2023 by mandating e-invoicing by phases, kickstarting 1 August 2024 to
enhance service quality, reduce compliance costs, and increase overall business efficiency.
Introduced with the specific goal of aiding the government in achieving its 2024 tax collection target of RM185 billion, the system became mandatory for taxpayers with an annual income or sales exceeding RM100 million from 1 August 2024 onwards. To ensure a systematic transition, taxpayers in other income categories will be progressively brought under the mandate, with full enforcement targeted by 1 July 2025 onwards.
According to Datuk Seri Ahmad Maslan, when he was assuming the role of Deputy Minister of Finance I, the implementation aims to overcome revenue leakage and shrink the size of the shadow economy. The adoption of e-invoicing serves as a mechanism to improve the efficiency of the country’s tax administration, ultimately enhancing tax compliance. Between 2000 and 2019, the shadow economy reduced from 30.2% to 21.2% of gross domestic product GDP. Due to the implementation of GST from 2015 to 2018, the size of the shadow economy was reduced to 21.2% from 2010 to 2019. It was also reported that the implementation of the e-invoicing system is projected to increase tax revenue contribution to between 14 and 15% of GDP, providing certainty for businesses.
Debunking Common Myths
Be it larger or smaller organisations, many businesses may not have fully adapted to the new system, despite the introduction of simpler and more affordable techniques. The rationale behind this is that there has been a widespread misconception about e-invoices that needs to be addressed.
Sending invoices in PDF format isn’t equivalent to an e-invoice. It involves using structured data exchangeable between the buyer and supplier. Another common myth is that e-invoices are not reliable. E-invoicing isn’t just environmentally friendly as we eliminate the usage of papers, but also minimises human errors. It is a seamless process and doesn’t require manual data entry, which in return expedites payment cycles.
Believe it or not, the move towards mandatory e-invoicing presents an array of opportunities for businesses in Malaysia, especially SMEs.
Datin Yap Shin Siang, Group Chief Executive Officer of YYC
