Tax Changes in Malaysia: E-Invoicing Implementation and Tax Deductions for ESG Activities
In an effort to support the digital economy and enhance tax administration and management efficiency, the Malaysian government has announced the gradual implementation of e-invoicing for all taxpayers engaged in commercial activities. Starting from January 1, 2024, this requirement will apply to both individuals and legal entities, including those subject to the LBATA or the Petroleum (Income Tax) Act 1967.
The implementation of e-invoicing will be rolled out in phases, with taxpayers having an annual turnover or revenue exceeding MYR 100 million being the first group required to adopt e-invoicing. This requirement will come into effect from August 1, 2024. The Inland Revenue Board (IRB) has issued guidelines to provide clarity and guidance on the implementation of e-invoicing. Furthermore, a software development kit with API configuration specifications is expected to be released by the end of 2023.
The mandatory implementation timeline for e-invoicing is as follows: taxpayers with an annual turnover or revenue exceeding MYR 100 million, as stated in the audited financial statements for the financial year 2022, must implement e-invoicing by August 1, 2024. Taxpayers with an annual turnover or revenue between MYR 25 million and MYR 100 million must implement e-invoicing by January 1, 2025. All other taxpayers must implement e-invoicing by July 1, 2025.
To incentivize companies to comply with environmental, social, and governance (ESG) standards, the government has introduced a tax deduction for certain expenditures related to ESG activities. This tax deduction will be available for four years, from YA 2024 to YA 2027. Companies can claim a deduction of up to MYR 50,000 for each YA for the following expenditures:
– Consultation fees incurred by micro, small, and medium enterprises (MSMEs) for implementing e-invoicing.
– Expenditures related to environmental, social, and governance (ESG) activities.
This move is aimed at encouraging more companies to adopt ESG practices and contribute to sustainable development in Malaysia. By providing tax incentives, the government hopes to foster a culture of corporate responsibility and promote sustainable business practices.
The introduction of e-invoicing is expected to streamline tax administration processes and reduce paperwork for taxpayers. It will enable businesses to automate their invoicing processes, leading to greater efficiency and cost savings. E-invoicing also enhances transparency and reduces the risk of fraud by providing a secure and traceable digital trail of transactions.
The Malaysian government’s focus on digitalization and the adoption of e-invoicing aligns with global trends and best practices. Many countries have already implemented or are in the process of implementing e-invoicing systems to improve tax compliance and administration. By embracing digital technologies, Malaysia aims to stay ahead in the global digital economy and attract more investments.
The implementation of e-invoicing will require businesses to adapt their systems and processes to comply with the new requirements. It is crucial for taxpayers to stay updated with the guidelines and timelines provided by the Inland Revenue Board (IRB) to ensure a smooth transition to e-invoicing. Businesses should also consider seeking professional advice to understand the impact of these changes on their operations and to ensure compliance with the new regulations.
In conclusion, the Malaysian government’s decision to implement e-invoicing for all taxpayers engaged in commercial activities is a significant step towards digitalization and improving tax administration. This move will not only enhance efficiency and reduce paperwork but also contribute to the growth of the digital economy. Additionally, the introduction of tax deductions for ESG activities demonstrates the government’s commitment to promoting sustainable business practices. Businesses should proactively prepare for these changes and seek professional guidance to navigate the transition successfully.