Ill-prepared for take-off

David Lai, BDO's head of tax advisory and executive director for tax in Malaysia, says n overall preparedness appears low, particularly outside the Klang Valley.

IN the ever-evolving global tax landscape, digital transformation is increasingly pertinent to businesses across various industries. The acceleration of jurisdictions implementing mandatory e-invoicing underscores the recognised benefits of enhanced transparency and efficiency for tax administration.

For Malaysian businesses, the impending shift towards mandatory e-invoicing presents both opportunities and challenges, particularly with the approaching deadline of Aug 1, 2024. Malaysian businesses with turnovers exceeding RM100 million have less than three months for e-invoicing systems to go live.

Despite the Inland Revenue Board’s (IRB) recent updates of its e-Invoicing guidelines and Software Development Kit (SDK), many businesses remain unprepared. While some businesses are anticipating a deferral, no official announcements have been made to date.

Malaysian businesses demonstrate varying degrees of preparedness for e-invoicing adoption, influenced by factors such as industry dynamics and resource availability.

Larger corporations that are well equipped with financial and manpower resources may face greater complexities due to system integration processes. Conversely, many micro, small and medium sized companies (MSMEs) are proceeding cautiously, possibly underestimating the urgency for compliance.

Overall preparedness appears low, particularly outside the Klang Valley. Certain industries, with high volumes of business-to-consumer transactions, have expressed concerns about readiness by the Aug 1 deadline.

Despite calls from some associations for a phased approach to implementation, the IRB has not indicated intentions for any deferral. However, the IRB may consider applications for waiver of penalty on a case-by-case basis.

With the mandated implementation of e-invoicing, Malaysian companies can expect a transformative impact on operational dynamics from the increased efficiency in tax compliance for businesses.

Heightened tax compliance efficiency and transparency could potentially reduce tax audits by the IRB, which saves time and resources for businesses and the tax authority.

Larger enterprises will likely heavily rely on automation, enhancing accountability and real-time accessibility for management. However, MSMEs may face challenges, including high set-up costs and the need to adjust existing processes. These businesses may require support and assistance to implement e-invoicing systems effectively.

Against the backdrop of many companies being unprepared for e-invoicing implementation, calls have been made for the government to consider lowering thresholds and exemption criteria, acknowledging the impracticality for all small businesses to incur e-invoicing expenditures.

Nevertheless, it is worth noting that many countries have successfully adapted to this practice over the past decade. These countries include India, France, Italy and Brazil, that have successfully implemented e-Invoicing under Value-Added Tax (VAT) or Goods and Services Tax (GST) regimes.

Some of these countries started the implementation of e-invoicing in a phased approach where it began with business-to-government transactions, which have facilitated the smooth transition.

As seen in these countries, e-invoicing introduced efficiency gains in tax compliance, accounting practices, invoicing processing and data accuracy, alongside environmental benefits. Enhanced tax collections and reduced fraud were also observed in these countries.

Malaysian companies have several options for e-invoicing integration, necessitating configuration adjustments to existing accounting systems or enterprise resource planning (ERP) software. This includes direct Application Programming Interface (API) connections with the IRB or employing middleware solutions for automation.

Businesses must evaluate system adequacy and consider additional functionalities to meet e-invoicing compliance requirements, such as capturing the 55 mandatory data fields in an invoice, of which 17 are non-mandatory. Middleware solutions also offer flexibility and may reduce software tweaking during implementation and regulatory changes.

Existing accounting software often serves as the primary data source for e-invoicing compliance, requiring varying levels of configuration base on available functionality. For legacy systems, middleware solutions offer viable alternatives.

A plethora of software solutions exist in the market, with costs contingent on organisation size, complexity and integration requirements. Thorough assessments are necessary to identify suitable options aligning with specific needs and budget constraints.

In conclusion, with limited time remaining until the Aug 1 deadline, Malaysian businesses face critical decisions regarding e-invoicing integration. For those unable to configure direct API integration promptly, consideration of middleware solutions is advisable.

This article first appeared in Star Biz7 weekly edition.

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