Electronic Invoicing: A peek into our not-too-distant future

Imagine a time in the not-too-distant future, where you head to your favourite mamak. You sit down and order a Roti Canai and a Teh Tarik, like you always do. The meal is good, the roti is extra crispy and the dahl is perfect. After finishing your meal, you look at the bill and mumble to yourself how everything seems to be more expensive compared to when you were younger. You walk to the register, you don’t bother using cash as cash is no longer accepted, and you pay with your e-wallet instead. The attendant enters the transaction into their system, and all the information in relation to your purchase is instantaneously sent to the Inland Revenue Board in Malaysia (IRB), including what you ate and drank, how much you paid, your name, and identification number.

While that scenario is still some time away, the initial steps towards real-time reporting of business transactions to the IRB have started to take shape. Earlier this year, the IRB announced that companies with an annual turnover of MYR 100 million would be required to comply with electronic invoicing (e-invoicing) requirements from 1 June 2024. This is part of the first phase, which forms an ultimate plan for all companies to be compliant by 2027. E-invoicing involves the real-time data exchange between a supplier or service provider’s system and a third-party exchange that would validate and collect this information. In Malaysia’s case, the third-party exchange will be built and managed by the IRB.

In simple terms, the IRB requests that companies in scope transmit a data file from their systems to the IRB’s systems for every single transaction they undertake on a real-time basis. The IRB would then validate this information and provide ‘clearance’ for the company to issue the invoice to its customer. A failure to comply with this requirement could result in penalties being imposed or cause the customer to be unable to claim an income tax deduction for the purchase.

The data file in question would need to contain the prescribed information outlined by the IRB. The required information is comprehensive and includes the customer’s name, address, email address, and Tax Identification Number among other things. In total, there can be up to fifty data points or more, depending on the scenario. This information is required for each individual business transaction on a real-time basis.

The immediate question that springs to mind is, what does the IRB intend to do with all this information? There are several areas where this information can benefit the IRB. Firstly, it will allow the IRB to conduct more real-time audits by leveraging data analytics and other tools to quickly identify underreporting and underpayment of tax. It will also allow the IRB to have greater visibility of business activity and shine a light on the shadow economy. From an efficiency standpoint, the IRB is also hoping to eventually use some of this data to pre-populate income tax returns, which may reduce the amount of work we all have to do when it comes to tax filing season each year. The benefits may not only be limited to the IRB, as it is possible that this data could also be shared with other agencies and government departments to support their activities. For example, we understand that the Royal Malaysian Customs Department will also have access to this information to use for its own enforcement activities.

There will be exceptions though. Going back to our mamak story, it is unlikely that transactions we undertake in our own personal capacity will be impacted by these rules in the immediate future. Our understanding is that the rules for consumer purchases will be less stringent and unlikely to require the transmission of customer personal data such as name and ID number. However, if the consumer requires an invoice to claim a personal income tax deduction, then it is likely that this personal data would be required. If we look at our recent personal income tax return, there are income tax reliefs available for medical expenses, education, various lifestyle purchases such as internet and magazine subscriptions, and the purchase of life and medical insurance. All these reliefs would require invoices to substantiate the taxpayer’s claims and these expenses may require an e-Invoice from 1 June next year.

The IRB has released some information already, and additional information will be released in stages over the next month, including the draft Law. In parallel, the IRB has also been holding various dialogue sessions with businesses as well as industry and professional bodies to clarify matters further. Ultimately, the devil will be in the detail and businesses in scope of the first phase will need to start the planning process to ensure that they can be ready in time and avoid any risks of penalties or disruption to their business activities.

Some of you may question as to how feasible all this really is. If we go back to our mamak story, it was not long ago when cash was the only option we had for payment. Technology is profoundly changing how we interact with each other and not all of it is by choice. It has changed the way we order our food, book our transport, and very soon, how we will deal with the taxman.

Senthuran Elalingam is the Tax Technology Consulting Leader of Deloitte Malaysia. The above views are his own.