KPMG: Majority taxpayers supporting of e-invoicing but transition is not without challenges

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KPMG in Malaysia has welcomed the Inland Revenue Board’s (LHDN) announcement allowing companies to submit a single consolidated e-invoice within the first six months of their implementation of the new e-invoicing system.

Calling the move a timely concession, KPMG in Malaysia head of tax Soh Lian Seng said the firm’s latest survey has indicated that taxpayers are still working through their e-invoicing transition challenges.

“This development will provide taxpayers with much needed breathing room to ensure the transition to e-invoicing can be completed with minimal impact to operations,” he stated.

“This is further evidence that the Malaysian government is listening to the voice on the ground and is willing to support taxpayers in this national momentum towards greater tax governance.”

Soh Lian Seng

The market survey Soh referred to was conducted by the professional services firm from July 1–8, 2024, which gathered insights from more than 200 respondents comprising large taxpayers (LTPs) and small to medium-sized enterprises (SMEs).

The results were discussed at the 24th Edition of the National Tax Conference 2024, moderated by Soh who is also currently the Chartered Tax Institute of Malaysia (CTIM) president.

In KPMG’s survey, a majority of LTPs (60%) and SMEs (56%) had expressed a desire for the government to provide a no-penalty period during the initial phase of e-invoicing implementation as their top wish list to navigate the complexities of e-invoicing implementation.

The same survey found that a majority of LTPs with annual revenues exceeding RM100 mil are not fully ready in their e-invoicing implementation by Aug 1 which is the compliance deadline mandated by LHDN.

According to the survey, almost six in 10 reported being less than 50% prepared, while 30% claim to be more than 50% prepared, and only 4% reported to be fully ready for e-invoicing.

Despite that, 73% of LTPs expressed their support for the e-invoicing initiative. In the long term, LTPs perceive significant benefits from e-invoicing, such as reduced tax audits and ensuring the completeness and authenticity of documentation (12%), improved ESG ratings due to reduced printing, enhanced compliance, and transparency (8%), and increased operational efficiency (7%).

However, the survey revealed that this transition is not without its challenges, with the top three factors cited by LTPs to be additional costs for IT systems and gadgets, the need for extra manpower, and system glitches and possible errors.

One of the primary concerns reported by the survey respondents is the readiness of their systems and processes as companies transition to e-invoicing.

Despite best efforts, many are still fine-tuning the technical aspects and ensuring compatibility with their existing infrastructure.

(Image credit: theSun)

Commending LHDN’s approach to motivate taxpayers to push through this challenge with an accelerated capital allowance claim, Soh said this would benefit all taxpayers including SMEs who are likely to encounter similar implementation challenges, if not more than those experienced by LTPs that will require extra consideration.

The increased tax incentives include a reduction in the capital allowance claim period from four years to three for the purchase of ICT equipment and computer software packages for assessment years 2024 and 2025.

He further highlighted that while e-invoicing promises greater efficiency in the long run, the short-term disruptions necessitate careful management.

“Delays in invoice processing and payment cycles will negatively impact cash flow and financial stability. This challenge underscores the crucial role of LHDN in supporting taxpayers during this transition,” he added.

He noted that taxpayers have been given ample time to prepare for the transition to e-invoicing, which was first announced by the Finance Ministry during the 2024 Budget in October 2023 and should not come as a surprise at this stage.

“Communicate with your tax professionals,” urged Soh of all taxpayers.

“With the mandates for the second and third groups in effect on 1 January 2025 and 1 July 2025 respectively, it’s important for taxpayers to be proactive in addressing potential challenges during their transition.

“This requires a collaborative effort between taxpayers, tax administrators, and tax advisors.” – July 29, 2024

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