The impending introduction of e-invoicing is potentially the significant driver of enhanced tax collections.
IN the last one year or so, various tax measures have been introduced by the government to increase Malaysia’s tax collections, including capital gains tax (CGT) and an expansion of the service tax scope with an increase in the service tax rate of 2% generally.
The impending introduction of e-invoicing is potentially the significant driver of enhanced tax collections.
Capital gains tax
CGT is effective from Jan 1, 2024 onwards for disposals of all types of overseas investments; and from March 1, 2024 for disposal of domestic shares in Malaysian unlisted companies.
CGT is confined to disposals by Malaysian companies, limited liability partnerships, trust bodies and co-operative societies.
Other categories of taxpayers including individuals are not subject to CGT.
For disposals of Malaysian unlisted shares, CGT tax returns will need to be filed electronically within 60 days from the date of each disposal and the tax must be paid within 60 days from the disposal date as well.
Gains arising from the disposal of foreign investments are subject to CGT upon remittance into Malaysia from Jan 1, 2024 and would form part of the taxable income for the relevant year of assessment for the entity concerned.
The Inland Revenue Board (IRB) confirmed recently that for disposals of foreign investment assets undertaken prior to Jan 1, 2024, the monies remitted into Malaysia from Jan 1, 2024 onwards would not be subject to CGT as the disposals took place prior to the introduction of CGT.
Service tax
The sales and service tax (SST) is a consumption tax charged on the sale of goods and services whereby the tax burden is ultimately borne by consumers.
Effective March 1, 2024, the service tax rate was increased from 6% to 8% for all services including imported taxable services and digital services provided by foreign registered persons, except for food and beverage, telecommunications, parking and logistics services (new taxable services), which will be subject to service tax at 6%.
Due to the transition, for a taxable period that involves both tax rates (6% and 8%) the service tax return is to be updated to allow for both rates to be declared.
For taxable services spanning March 1, 2024 where part of the payment was received before March 1, 2024, there will be an additional 2% service tax on payments received on or after March 1, 2024.
The service tax registrant is required to issue a debit note to the customer for this additional service tax and account for it in the service tax return for the taxable period in which the debit note is issued.
Delivery services fall within the ambit of logistic services under changes introduced in Budget 2024.
A little known fact is that this expansion doesn’t apply solely to companies within the logistics industry; it also encompasses any company that charges delivery or transportation fees for the delivery of goods (for example, delivery charges by a trading company).
Further, previously only preventive maintenance work was subject to SST while corrective maintenance/repair services were not. After the Budget 2024 amendments, both types of services are subject to SST.
E-invoicing
To support the growth of the digital economy, the government intends to implement e-Invoice in stages to enhance the efficiency of Malaysia’s tax administration management.
E-invoicing involves the generation of an electronic invoice by keying in relevant data (name, address, tax identification number and email address) of the supplier and purchaser and submitting the invoice to the IRB’s MyInvois portal for validation.
There are 55 fields to be filled up, with N/A filled for irrelevant fields.
Filling up so many fields is tedious and arduous. A simplification of the e-invoicing system for the initial implementation at least should be considered.
Once the validation of the e-invoice is done by the IRB’s portal, the supplier would share the e-invoice with the purchaser to make the payment accordingly.
The IRB is, therefore, privy to the business transactions carried out.
A validated e-invoice serves as proof of the income for the supplier and proof of expense for the purchaser.
The purchaser cannot claim a tax deduction without an e-invoice.
The impact of e-invoicing would be far reaching in widening the taxpayers’ database. To illustrate, if a university pays a student for working part-time in the library, the student is an individual that is not carrying on business and would not be able to issue an e-invoice for the services rendered.
The university is, however, incurring an expense and to claim a tax deduction, an e-invoice is required. Therefore, the university would need to issue a “self-billed” e-invoice by keying in the relevant details of both parties and submitting the e-invoice to the IRB’s portal for validation.
As a result, IRB would have knowledge of the details and income earned by the student, thus widening the pool of taxpayers.
The implementation deadline for e-invoicing is drawing nearer, being mandatorily applicable for taxpayers with more than RM100mil revenue from Aug 1, 2024.
It is a very tight deadline and there have been calls from various parties to perhaps start with voluntary adoption by Aug 1, 2024, with the mandatory deadlines deferred accordingly.
Harvindar Singh is managing partner, Harvey & Associates PLT. The views expressed here are the writer’s own.
