Electronic invoicing to improve tax system

Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz.

PETALING JAYA: To improve the efficiency of the tax system, the government aims to phase in the electronic invoicing system (e-invoicing) starting 2023, says Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz.

“E-invoicing will also aid in the implementation of a sustainable electronic business ecosystem, and provides a more reliable audit trail, resulting in increased tax transparency and is viewed as one of the primary strategies for increasing tax revenue,” he said in his speech at the 51st annual meeting of the Study Group on Asia-Pacific Tax Administration and Research (SGATAR) yesterday.

Tengku Zafrul noted e-invoicing would complement a government target for small and medium-sized enterprises (SMEs) under the 12th Malaysia Plan, which is to digitalise 90% of SMEs’ operations by 2025.

He added e-invoicing will also support the use of the tax identification number, which will be mandatory for all documents and instruments.

“This will be a measure to broaden the collection of income taxes, ensuring a sustainable source of revenue for the government. This is consistent with the Organisation for Economic Co-operation and Development (OECD) report which identifies digital identity as one of the key building blocks for future seamless tax administration,” said Tengku Zafrul.

He pointed out that SMEs play an important role in Malaysia’s economy, accounting for more than 97% of total registered companies in 2020.

In 2021, SMEs contributed 37.4% of gross domestic product, and employed close to 48% of the workforce.

“As a result, more effort must be made to improve and enhance SMEs’ knowledge of tax compliance, and digitalisation is the way forward in supporting their compliance while reducing administrative burden,” said Tengku Zafrul.

Meanwhile, Malaysia has also agreed to implement the two-pillar approach, in order to create a competitive environment for both foreign and domestic direct investment, and to prevent cross-border tax evasion.

“This is being studied and is estimated to commence in 2024,” said Tengku Zafrul.

The OECD’s two-pillar proposal for global tax reform is to ensure that multinational enterprises (MNEs) will be subject to a minimum tax rate of 15%, and will re-allocate profit of the largest and most profitable MNEs to countries worldwide.

He added that tax policies and strategies must play a role in encouraging corporations to embrace and implement environmental, social, and governance policies.

Malaysia has adopted the 2030 Agenda for Sustainable Development, which includes priorities to reduce greenhouse gas emissions by 45% of GDP by 2030.

“We are also committed to achieving carbon neutrality by 2050 and have urged all government-linked investment companies, as well as government-linked companies, to set similar net-zero targets.

To support this effort, the government is working towards carbon taxation and studying the feasibility of a carbon pricing mechanism,” said Tengku Zafrul.

He pointed out that there are also proposals to extend the Green Investment Tax Allowance and Green Income Tax Exemption for eligible green activities, which have been expanded to include solar and battery energy storage systems.

In aiming to eliminate hardcore poverty, Budget 2023 had proposed to set aside RM1bil focused on helping the very poor households to improve their earnings.

Tengku Zafrul also pointed out that female labour force participation remains relatively low at 55.7% compared to male labour force participation of 82.6% mainly due to women leaving the workforce to care for family.

“Towards supporting working mothers, the government has provided various tax incentives including for employers to provide childcare facilities at the office or to provide childcare allowances to its employees.

In addition, Budget 2023 proposed a RM3,000 tax relief for childcare expenses and also a tax exemption on income for women returning to work after a career break,” he said.

Established in 1970, SGATAR is an annual forum for tax administrators to enhance cooperation, improve administration and discuss issues related to tax administration.

There are currently 18 members including Australia, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Mongolia, New Zealand, Papua New Guinea, the Philippines, South Korea, Singapore, Thailand and Vietnam.

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