How e-Invoicing is set to change the tax landscape in Malaysia

Malaysia is modernizing its tax scene with the implementation of e-Invoicing, which is expected to improve efficiency and ensure business compliance.

In brief

• Malaysia's e-Invoicing initiative simplifies tax compliance, providing corporates with efficient, real-time reporting capabilities.
• HASiL's real-time data acquisition through e-Invoicing facilitates prompt, precise tax audits and enhances transparency.
• Future e-Invoicing phases could automate tax return processes, with HASiL pre-populating returns for taxpayer verification.

Corporates in Malaysia heaved a sigh of relief when the last consolidated e-Invoice for August was submitted by the 7 September deadline, which happened to fall on a Saturday.  This marked the culmination of months of feverish preparation. Teams of IT, finance and tax personnel had worked together to clean up and sort master data including obtaining missing tax identification numbers (TINs) from customers, customizing and enhancing IT systems and running thousands of testing scenarios. Their efforts were aimed at ensuring a successful go-live of the First Wave for taxpayers with revenue of above RM100 million. 

Thanks to the strategic decision by the Inland Revenue Board of Malaysia (HASiL) to grant broad concessions, businesses that could not issue individual e-Invoices – mainly due to complex system setups and customization requirements –are allowed to use consolidated e-Invoicing for the time being. Additionally, an exemption from penalties was offered to those that applied this concession. As a result, e-Invoicing in Malaysia can be considered to be a success. This is noteworthy, especially since many countries in Europe, like Poland and France, and the Philippines closer to home, have postponed their own e-Invoicing implementation dates. The concessions provide large taxpayers in Malaysia with the assurance that they have a six-month period to address issues, improve accuracy and customize or set up their systems to automatically process e-Invoices.

Some contexts for those not well-initiated with e-Invoicing.  In simple terms, an e-Invoice is a digital representation of a transaction between a supplier and a buyer. It is an electronic document in a format specified by HASiL to allow automatic processing by the relevant systems.  This e-Invoice must be submitted to HASiL for validation, after which the taxpayer issuing the e-Invoice will receive a validated e-Invoice with a Unique Identifier Number that will need to be shared with customers.  Taxpayers will need to have validated invoices on hand as proof of income – and in the near future, expenses – for tax reporting purposes.     

This means that HASiL will have access to real-time transactional data for almost all taxpayers and will no longer need to wait for corporate tax returns to be submitted (which could be nearly 20 months after a transaction takes place, for transactions occurring early in the financial year) before seeing the true picture of taxpayer business volume and profitability, which greatly impacts tax collections.  The e-Invoice also requires Malaysian taxpayers to provide specific data points in specific data structures and formats, enabling a more efficient and digitalized tax administration system that supports the nation’s broader digital transformation goals.  Greater transparency and data availability will also allow HASiLto reduce tax evasion and provide insights into company revenues almost in real time. 

What’s next?

Given that Budget 2025 is around the corner, we thought we would share our thoughts on where we think the e-Invoicing system, will be taken by HASiL who are responsible for the implementation and operations of the system in Malaysia. One key factor in the Malaysian e-Invoicing system is that it will have an income tax basis, in contrast to other jurisdictions where e-Invoicing is linked to broad-based transactional taxes like good and services tax (GST) and value-added tax (VAT). 

Focus on expenses: Currently, the requirement to issue an e-Invoice lies with taxpayers who are issuing sales invoices (proof of income).  We expect that the next phase of HASiL’s e-Invoicing journey will be on the expense side of the equation. The aim will be to require validated e-Invoices as proof of expenses in the near future, in order for a tax deduction to be claimed.  This will likely reduce false claims and decrease the amount of verification HASiL needs to do on expenses, thus allowing tax refunds to be processed more quickly.  Given the many varied categories of expenses and factors such as accruals and provisions, the system’s ability to tag and reconcile data will require careful consideration due to the complexity involved.   

Use of the data collected through e-Invoicing by the HASiL for audits or queries: With so much data now available to HASiL, we expect a greater use of tax analytics and sophisticated data analysis to uncover anomalies for further investigation. E-Invoicing will also allow enable HASiL to view the entire chain of transactions and to spot particular areas where e-Invoicing ends, which may indicate that taxpayers there are not complying with the regulations or may have something to hide. Furthermore, HASiL will have the capability to monitor and query taxpayers almost the minute data comes in, particularly where technology like AI are used to detect potential areas of concern and automatically send requests to taxpayers for clarification or reconciliation. This represents a significant change for us in the tax profession, as we have always had the luxury of filing a corporate tax return seven months after the financial year-end and then waiting for a tax audit or queries on a transaction, which at the earliest would happen years after the transaction took place. Will taxpayers have the necessary documentation and personnel in place to handle an increased volume of tax queries that occur soon after the transaction is reported for e-Invoice purposes? 

New fields and the continual use of e-Invoicing for data collection: Given the trends in other markets that have implemented e-Invoicing, we can expect the number of data points that HASiL wants to collect to increase exponentially over time.  Mexico started with just over a hundred data points and has now expanded to over two hundred.  Poland is expected to have a similar number when its e-Invoicing system is fully introduced.  It is also important to remember that many data points initially required by the customs authorities when the first versions of the Guidelines were introduced have since been made optional. However, these could be reinstated as mandatory fields at some point in the future.  This means that e-Invoicing will undoubtedly continue to evolve and grow in complexity as the system becomes more established, and taxpayers cannot treat it as a one-off technology implementation project. There will be a need for taxpayers to monitor changes in laws and guidance and to react accordingly.

Use of data for pre-population of returns, and further integration with HASiL’s systems: With all this data and the aim for greater efficiency, one of HASiL’s initiatives under e-Invoicing may eventually be to prepopulate key fields in tax returns. This will have significant ramifications for the tax industry, as the responsibility for taxpayers will change from the collection and reporting of tax data to assessing whether they agree with the draft assessments or returns prepared by HASiL. Taxpayers will also need to consider whether they have the documentation and information available to refute or challenge the numbers presented. Another point on e-Invoice data is that the system has ensured that the e-Invoice data fields are now formatted and structured in a very uniform way, thus ensuring a level of consistency in these data fields that was not possible before.  Having such precisely formatted data will enable greater innovation, including greater use of automation for even non-e-Invoice related matters and sector specific initiatives.