E-Invoice Malaysia Penalties: Consequences of Not Generating E-invoice

The implementation of e-invoice in Malaysia has been a significant step towards modernizing and streamlining business transactions. However, compliance with this system is not just a matter of convenience; it's a legal obligation with clear penalties for non-compliance.

Penalties for Non-Compliance with E-invoicing Rules

Failure to issue an e-invoice constitutes an offence under Section 120(1)(d) of the Income Tax Act 1967. Penalties include fines ranging from RM200 to RM20,000 or imprisonment for up to 6 months, or both, for each instance of non-compliance.

Applicability of E-Invoicing in Malaysia

• Type of Transactions: E-invoicing is applicable for all B2B, B2C and B2G transactions.
• Cross-Border Transactions: E-Invoicing is mandatory for both domestic and cross-border transactions.
• All Industries: No industry exemptions; all businesses must comply, subject to periodic reviews. Government authorities, rulers, ruling chiefs, etc, are exempt from e-invoicing.
• Phased Implementation: Businesses must implement e-Invoicing based on turnover thresholds, with a phased timeline. The government has determined implementation in the following phases:

Other Consequences of the Generation of E-Invoices

In addition to direct penalties, there are several other significant consequences associated with the failure to generate an e-invoice:

1. Non-recognition of Revenue and Expense: The e-invoicing guidelines mandate the generation of e-invoices as proof of income and expenses. Failure to generate an e-invoice may result in the disallowance of recognizing a sale in the books of accounts. Similarly, the absence of self-billed e-invoices could prevent businesses from claiming expenses.
2. Revenue Loss: Businesses would refuse traditional invoices as they do not facilitate buyers in claiming expenses, potentially resulting in revenue loss.
3. Unavailability of Bill Discounting: The absence of e-invoices would make businesses ineligible for bill discounting facilities, impacting their liquidity and financial flexibility.
4. Lower Legal Validity: E-invoices typically carry higher legal validity compared to traditional invoices. Failure to adopt e-invoicing may result in lower legal validity for business transactions, potentially leading to disputes or legal challenges.

Penalty for Not Issuing Tax Invoice

Although e-invoicing compliance hasn't started yet, businesses registered under SST must still furnish tax invoices to their buyers. Failure to do so may incur a penalty of up to 30,000 Malaysian Ringgit, imprisonment for a maximum of 2 years, or both.

Steps to Take for Avoiding Penalties 

Understand the Mandate and Implementation Timeline: Determine the phase at which your business falls under the mandate and the deadlines associated with compliance.

Assess Your Requirements: Analyse your business's transaction types, including B2B, B2C, and B2G transactions, Evaluate the frequency of your transactions and the delivery channels through which your transactions occur, such as point-of-sale (POS) systems, e-commerce platforms, etc.

Choose the Right e-Invoicing Model: Based on your assessment, select the most suitable e-invoicing model for your business. For sporadic requirements, single-channel operations, or businesses with lower turnover, the MyInvois Portal may be appropriate. For more complex requirements or higher transaction volumes, consider API integration for seamless e-invoicing.

Here is a complete Checklist for E-invoicing in Malaysia

Prepare Your System: Prepare your IT infrastructure and make any necessary updates or modifications to accommodate e-invoicing requirements. Consider partnering with a trusted e-invoicing solution provider like ClearTax for API integration with your existing business systems.

Train Employees: Provide comprehensive training to your employees on the e-invoicing process, system usage, compliance requirements and handling errors.

Conclusion

It is crucial for businesses in Malaysia to recognize the implementation of e-invoices and embrace it as an essential part of modern business practices. Even before it becomes mandatory, initiating preparations to voluntarily adopt e-invoicing can provide numerous benefits, including streamlined processes, enhanced efficiency, and improved compliance with tax regulations.

Participating in pilot programs and adhering to guidelines set forth by the Inland Revenue Board of Malaysia (IRBM) is crucial to ensure a smooth transition and avoid potential penalties for non-compliance.