E-Invoicing Phase 3: What It Means for Malaysian SMEs

0:00 Phase three of Malaysia's e invoice system roll out kicks off on Tuesday targeting taxpayers with annual revenue between 5 million and 25 million ringit. Inland revenue board IRB deputy chief executive officer tax operation Shaharu Otman said approximately 55,000 taxpayer are expected to be on boarded in this phase and expressed confidence that the take up rate would mirror previous phases. The fourth and fifth phases of the roll out will target businesses with annual income between 1 million ringit and 5 million ringit starting 1st January 2026 and those earning up to 1 million ringit beginning July 1st 2026. And for that I welcome you. Our guest ready on the set is Havi the SCS global and council member of tax institute. I

0:47 want to say thank you very much Havinda for joining us again. Last time uh you came to this we were talking about the SSC amendment and the expansion and now uh we're going to add more discussion within the tax system it's e invoice and we're are at the phase three uh phase three brings in business with 500k to 25 million ringit turnover uh probably if before we discuss long what's the real goal behind the phase three um once again first of all nan thank you for the invitation it's good to be here and phase three basically is for taxpayers with turnover 5 million to 25 million and uh so we're in the middle of this uh five phases of the implementation and uh the idea here is to basically first of all uh initially there was supposed to

1:34 be three phases they've been expanded to four then subsequently now to five. Mhm. is essentially to give uh taxpayers more time to be invoice savvy and to be able to implement invoicing uh more efficiently. So what it means for this uh phase three taxpayers uh actually is that uh also bearing in mind that invoicing has its own complexities and takes time to get uh the systems in place. Uh there's a lot of relaxation that actually has been given by the government. And what it means essentially is for the next six months this categories of category of taxpayers can uh continue to actually carry on business as usual. They can issue the normal invoices. You don't have to have an e invoice in place but

2:20 at the end of every month within 7 days from the end of the month you have to do a consolidated invoice which means uh you know all these normal invoices you sent out you sent out uh you will list them the amount and the invoice number it's just one consolidated invoice to be submitted to the IRB. And that makes life a lot easier because if you talk about individual e invoices, you need to have the details of the uh customer, there are normally six unique details that you need to know. The name, the text number, the u ID, um the address, the email address, the telephone number and it takes time to gather you know all this information. So with the consolidated invoice, you don't need any such details. It is just the putting the

3:06 details of your invoice number, the normal invoice you sent out and the amount and that's consolidated and submitted to the RB. So these six months basically are to enable taxpayers to you know don't don't sit on their laurels uh start getting invoice ready. Invoicing is here to stay. It's not going to go away not going to magically disappear because it's very important for the government. Invoicing is a tool to increase compliance to increase the collections and it is hoped that perhaps by the time invoicing is implemented in full uh we will have uh you know a 30% 40% increase in the tax collections. Mhm. That's the uh main driver of course behind invoicing as well. uh will the grace period will help or hurt because

3:52 we we understand that July to December 2025 re-election period gives business more time but uh do you believe it's actually helped them prepare or just delay the inevitable rush actually well uh you know I think at the end of the day uh like I said invoicing is here to fully be you know it's going to be implemented there are repercussions if you do not comply uh for the uh supplier the businessman or the party that's uh carrying on the business. It's a it's a requirement under the law to issue an e invoice. Otherwise, you could face a fine of between 2008 to 20,000 for each invoice that's missing. So, it's down in the self- assessment system. It's always uh down to the taxpayer is the

4:37 responsibility the owners of proof and responsibilities on the taxpayer to ensure that uh you know the requirements are met. Of course, it can be a challenge uh to implement invoicing. You need to train your staff. You need to have the systems in place which by the way are becoming increasingly affordable. It's not going to cost you an arm or a leg, you know, so to speak. So it is not to me I feel uh it is not something that you can just uh try to escape from by having this escapism. you need to face the reality and we need to actually look at how to implement it. So if you delay it, if you wait for the last minute and you hope that maybe there's another postponement you know

5:24 from the government which may or may not happen because eventually the idea is to have it implemented in full. Mhm. And I think uh however long it takes even if it means that there has to be some further postponement or refinement of this eventually we will get there. So I feel the 6 month relaxation period is very useful. Um the phase three taxpayers uh know that they are now on board and at the very least they have to do the consolidated invoice. So you might as well learn how your actual invoicing you know will take place as well. And and if I may just add um if you are if you're basically dealing with consumers, business to consumer transactions, if

6:09 you are a restaurant operator, if you are a supermarket, if you are a you know clinic, you don't actually have to issue an e invoice for each transaction. You can still carry on business as usual and then you do the consolidated invoice at the end of the day. So it is not as uh I think as tedious or as complex as some may perceive FLA but when you're transacting with another uh business business to business there then invoicing has to be done on an individual basis and indiv invoice is required for every transaction. So the impact of this may not be all that u uh you know uh significant on most parties. Um I think uh what's really important

6:55 and what I'm glad about is that uh the government of IRB has actually given this relaxation to enable taxpayers to be prepared to to learn the ropes and try to be invoice savvy as quickly as possible. You have to be tax heavy for this upgrade your skill as well. That's right. Um we understand that uh as you mentioned that uh probably one of the basic necessity requirement for us to uh registration for invoice we need to have basic ID numbers address and uh number of receipt and then uh but maybe you can share with us some of the businesses industry probably the small players doesn't understand fully the procedure probably they say when the announcement of few faces of e invoice okay now we have to go to class training programs and now we have to provide this but they

7:41 don't know the correct order of this. Uh maybe you can share with us. We know they have guidelines few pages to explain it but but maybe can simplify for us uh the easy step for them to start. So we understand maybe some of it can become overwhelming during this uh process education. uh but maybe you can share with us what are the correct guidelines or step they should start uh taking from the early from taking classes to providing all their requirement documents until the end of the deadline. Okay. I think uh in a way we are at that phase or that stage now where firstly we talk about uh the systems that are out there that can be implemented. Uh they are very friendly and very easy to use uh systems. I just

8:29 give you an example. Um, you know, if you go to Starbucks and you want to buy a drink, uh, they will issue a normal receipt to you because Starbucks has already started implementing invoicing. But, uh, being a business to consumer transaction, they don't issue an e invoice to you. They give you the normal receipt, but at the bottom there's a there's a link which, uh, basically links you to their, you know, you go into that link, it links you to their website. Mh. So the purchaser if requires an invoice you want an invoice for yourself you can go in and key in those six details. Okay. Right. And submit enter it goes into Starbucks system. Starbucks system is linked to bas portal. The e invoice is validated and you have it. It will be emailed to you etc. Now that same system uh can be

9:18 tweaked and has been tweaked by the uh providers um you know the software providers and this this systems providers to be used in the kadai uh nasi or whatever as well. So you go there and the you can you can you will be given a tablet if it's point of sales kind of transaction you press uh so the operator presses nasi am for five ringgit or whatever it goes into the system it gets linked to the IB portal and you have an invoice basically given on the spot and these systems can actually be um you know purchased or subscribed for on a monthly basis for very affordable prices 100 ringgate, 200 ringgate, 1,000 ringgate

10:03 depending on you know the the requirements of the party. So to me I think uh what's important to share firstly is that uh there are such systems available. Uh basically the awareness of that is not really out there. Uh it is not going to like I said cost you an arm and a leg to basically implement invoicing. If you talk about the studying step for invoicing very quickly just to go back one step an e invoice essentially is uh from from the technical perspective it is uh um uh what do you call it a representation digital representation of the transaction if I'm selling a uh my services to you I will uh put in our

10:48 details I will uh put in your name my name and relevant details the amounts and submit it to the IRB's portal for validation for that I can actually use uh my invoice portal as well which is provided free of charge so it is there the facility is there and it's quite robust now initially there were dealing problems but it's there for everybody to use as a facility and once uh I've submitted that invoice will be once validated by the IRB it you and I will both be notified about the validation and I can then share that invoice to you to say that uh you Nina, you owe me this money. Can you please pay? I can give you a visual representation of that. And you can either reject it or accept it. You got three 72 hours to reject that e

11:36 invoice. And all these things are actually part of the system of every e invoice transaction that is carried out. And uh I suppose the understanding of that the awareness of that can be shared with the employees with the uh people that are going to implement uh invoicing that the entire system basically what it entails the processes that are entailed. So once the invoice you don't reject it, you accept it. I have not overbuilt you for example it will be in the IRB's portal for the next 10 years right it's there to stay and so actually it is uh the whole idea behind this firstly is for the IRB for the tax authorities to be privy to the transaction to know that I have you know done such a sale they can monitor me eventually to see whether

12:23 I've reported that I've paid taxes on that income you know those are some of the things that are there um but this entire process of validation creation etc is simplified in those instances like what are some of the common mistake usually uh for taxpayer uh we know common mistake they typically do within final preparation for this well uh the first mistake is to uh firstly assume that you know perhaps uh this can be done at the last minute right that shouldn't be the case that's been the challenge I think for us as the uh consultants to many of the SMMES right uh they take this wait and see attitude but uh like I said it's not going to go away there's been a bit of a deferment but it's eventually going to

13:08 come in so we need to emphasize on the need to uh to be prepared as quickly as possible the other uh issue is perhaps not understanding exactly what the requirements are for example if you are a manufacturer small manufacturer as well and you're going to import materials from overseas uh in the past you would just do the customs clearance you have an invoice coming in from OC you make that payment right now there's a requirement for this uh manufacturer to basically uh issue a self-built e invoice mhm uh within two months from the end of the month in which uh the customs clearance is obtained so you got things like um understanding uh the requirement for invoicing and

13:55 then self-built e invoices the differences between the two need to be understood uh you need to know the deadlines for the various types of invoices to be issued. So mistakes will be along the lines of not understanding not knowing uh not doing a proper gap analysis between your current systems what they are and what they should be. And if I may just add on one more thing we only uh to to to assume that uh the current system of u you know the in invoicing that we do. Okay. Right. For example, if I were to sell my goods to you or provide my services to you, currently I will invoice when the services have been rendered or the goods have been delivered. Right? If I receive any advanced payments, it will be recorded

14:41 as a prepayment for accounting purposes. Okay. With e- invoicing that advanced payment requires an e invoice to be issued separately. Ah, so it's an additional transaction which requires probably my last question we have only less than one minute. Uh what's next after e invoice? Do you see invoice e- invoice eventually link up to SST like transfer pricing and then even BPS uh reporting? Should the taxpayer be preparing for that? Now less than one minute. Sorry. Yeah. Yeah. Invoicing actually basically will it's a unified uh invoicing system. It will allow for you know digitalized uh financial reporting. It will uh it's actually e- invoicing requirements also have all this data for customs which can be used for you know indirect tax purposes ST

15:28 sales tax import duty uh purposes um in terms of related party transactions it can also be the data can be m massaged to to look at you know the requirements for transfer pricing so eventually if you know if there's a need to implement GST as well the invoicing platform um it can accommodate GST as well right because it's after all uh put an issue of putting in a transational tax for every transaction that takes place. I want to say thank you very much. Uh unfortunately we are at the end of the session definitely I will invite you more again to fully understand all the system within the invoice SS. So thank you very much the SCS global and council member member of tax institute and definitely all of our discussion here will be featured in astron.com across

16:14 all social media. See you again. Thank you.