Impact of e-Invoicing in Malaysia: Advantages and Disadvantages

E-invoicing is becoming a widespread compliance requirement globally, with countries adopting e-invoicing one after another. Malaysia has followed the trend, with the first phase of e-invoicing in Malaysia scheduled to commence on August 1st, 2024. This adoption will bring both positive and negative impacts to Malaysian businesses and existing processes.

This blog will discuss the advantages and disadvantages of e-invoicing in the Malaysian context. Before we jump into the advantages and disadvantages- lets take some time to understand what e-invoicing really is and how it’s different from the existing invoicing process in Malaysia.

What is e-Invoice?

An e-invoice is a digital record of a transactional exchange between a seller (supplier) and a purchaser (buyer), which goes through the government portal for validation and recordkeeping.

E-Invoice contains all the details of an invoice along with a Unique Identification Number (UIN), which is generated by the government system after proper verification of the core fields like TIN, MCIR, etc. and QR code, which enables online validation of the e-invoice. In Malaysia, an e-invoice must be accepted by the buyer to be valid.

E-Invoicing vs Normal Invoicing

E-invoicing differs from traditional invoicing methods in several ways:

1. Format: E-invoicing involves creating and sending invoices in a digital format, such as XML or JSON, that can be processed automatically by computer systems. 
2. Processing: With e-invoicing, invoices can be processed automatically by software systems, reducing the need for manual data entry and minimizing errors. 
3. Delivery: E-invoices are typically delivered electronically, either through email, online portals, or direct integration with the recipient's systems via APIs. 
4. Validation: E-invoices can be validated automatically against predefined rules and formats, ensuring compliance and accuracy. 
5. Integration: E-invoicing systems integrate with other business systems such as accounting software, ERP systems, and payment gateways.
6. Acceptance: E-invoices need to be raised by the supplier and accepted by the buyer to be valid. 

Advantages of e-Invoicing in Malaysia

Here are some of the benefits  of e-invoicing

• Curbing Tax Evasions: With e-invoicing, every transaction is digitally recorded and validated by the IRBM (Inland Revenue Board of Malaysia) significantly reducing the possibility of tax evasion.
• Automated Data Entry: The E-invoicing process automates the data entry process, reducing the need for manual intervention and minimizing the risk of human errors.
• Reduced Errors: Standardized invoicing formats and pre-defined fields and formats ensure accuracy and consistency in invoice data, reducing discrepancies and errors.
• Real-time Tracking of Invoices: E-invoicing provides real-time tracking of invoices at every step of the process, from creation to submission, acceptance, or rejection. Both buyers and sellers can track the status of invoices, along with reasons for rejection if applicable.
• Online Validation of Invoices: Each invoice is assigned a Unique Identification Number (UIN) and QR code that allows anyone to verify the validity of bills instantly. 
• Higher Legal Authority: Validated data, Unique Identification Numbers (UINs), and Digital signatures enhance the credibility of e-invoices as they cannot be tampered with or altered. It gives e-invoices a higher legal validity.
• Lower Disputes: Since every invoice is verified by the LHDN (Inland Revenue Board of Malaysia) and then the buyer, the chances of disputes, assessments, or notices related to tax compliance are significantly reduced.
• Easy SST Return Validations: Data reconciliation between e-invoices and SST returns streamlines tax compliance processes, saving time and effort for businesses.

Disadvantages of e-Invoicing in Malaysia

1. Initial Costs: Transitioning to e-invoicing may require an upfront investment in software, system, integration, hiring and training. 
2. Technological Complexity: Implementing e-invoicing systems can be technically complex, especially for businesses with outdated or incompatible IT infrastructure. 
3. Dependency on Internet and Government System: E-invoicing heavily depends on Internet connectivity and government systems' efficiency. Internet disruptions or government system inefficiencies can disrupt invoicing processes, leading to transaction delays and revenue loss.
4. Supplier Onboarding: Ensuring all parties in the supply chain are aligned with e-invoicing procedures and technology may require significant coordination and communication.
5. Risk of System Failures: Technical glitches, system failures, or software bugs can disrupt e-invoicing processes and lead to delays or errors in invoicing and impact revenue.
6. Legal and Regulatory Compliance: Ensuring compliance with local and international laws and regulations governing e-invoicing can be complex and time-consuming. 
   

Conclusion

e-Invoicing is a game-changing compliance that completely digitises taxpayers' invoicing process. It is adopted by more than 100+ countries. The advantages of e-invoicing outweigh the disadvantages of the same. The implementation of the same not only benefits the tax authorities but also it is beneficial for the taxpayers as well.