Electronic invoicing This is currently a key priority for the Internal Revenue Board (IRB).
The main advantage of e-invoicing is that increased compliance can potentially increase tax revenues, as all businesses will be required to participate in this initiative compulsorily. A secondary benefit is that it eliminates the current leakage caused by non-invoicing, which in turn has the effect of reducing the size of the underground economy. The e-invoicing initiative aligns Malaysia with the rest of the world in digitizing the flow of information between governments and taxpayers.
Although the e-invoicing initiative was announced in the middle of last year, businesses are seriously considering starting the e-invoicing implementation process starting August 1, 2024 in phases for businesses with a turnover of over RM100. Apparently not. Many companies mistakenly believe that purchasing the necessary software or upgrading their existing software will solve their problems.
Unfortunately not. This software helps collect and transmit data, but it may not be able to decipher transactions or determine the types of documents that need to be generated.
There are two main parts to this exercise.
First, you need to plan your transactions and ensure that all transactions are recorded by correct documentation, limited to invoices, credit notes, debit notes, and refund notes. No other documents can be used in the electronic billing system.
The software then functions and provides an interface to feed the data into the IRB’s e-billing portal.
Issues that need to be addressed at an early stage
The e-invoicing framework has specific rules and is fundamentally different from the current invoicing process. An example is identifying transactions that require self-billing. This is required when goods and services are acquired from overseas suppliers, commissions paid to agents, staff invoices, and goods and services acquired from individuals.
Certain transactions are exempt from electronic invoicing. This includes salary income, pensions, Zakat, Fitra And scholarships. Government agencies are not required to issue electronic invoices. However, businesses that do business with government agencies will still be required to issue electronic invoices.
Currently, there are transactions that do not issue an invoice and simply record an entry in your account. Since electronic invoicing systems require all transactions to be documented through this system, such transactions must be identified and their resolution obtained. It cannot remain opaque.
B2C businesses are involved in issuing large amounts of invoices. In these situations, you may need to work with his IRB to explore mechanisms to reduce workload by sending consolidated electronic invoices.
You must review all transactions and ensure they are covered within your electronic invoice system. If there are any anomalies, you should seek advice from your IRB to address transactions within your electronic billing system. All this takes time.
A key part of the e-invoicing system is the mandatory collection of 51 data fields, with an additional 12 data fields. To do this, you need to consider internal processes that go beyond the finance department’s responsibility to capture and process data for existing connections and future new connections. New standard operating procedures may need to be set up, and this may involve other departments such as procurement, production, etc.
At the same time, you should also review your digital capabilities, especially the software you currently use. You may need to upgrade your software or purchase a new version of the software to meet IRB requirements.
It can easily take 4-6 months to be ready to implement an electronic invoicing system. If you’re planning on attending on August 1, 2024 or January 1, 2025, time is running out.
This article was contributed by Thannees Tax Consulting Services Sdn Bhd Managing Director SM Thanneermalai (www.thannees.com).