The e-invoicing initiative, slated to start with 4,000 businesses in June 2024, will help to stem leakages in taxes arising out of the shadow economy.
It will also lay the ground for the likely re-introduction of the goods and services tax (GST) in the future, according to CEO Nizom Sairi.
“In countries where the gap is smaller, they have an efficient tax collection mechanism, which is a consumption tax,” Nizom said in an interview. Malaysia’s tax gap, the difference between actual and potential collections, is at 25%, he said.
Malaysia needs to boost revenue to check the government’s ballooning debt and bolster its fiscal resilience against threats from a slowing global economy.
The country continues to under collect both personal and consumption taxes, lagging behind comparative peers, the World Bank said in its Malaysia Economic Monitor report in February.
To be sure, Nizom said, he doesn’t expect GST or any other form of consumption tax to be introduced this year.
But e-invoices, which will aid digital record keeping, would be similar to tax invoices in countries that levy consumption taxes, making the system GST ready, he said.
Nizom also said that the LHDN, which currently only handles direct taxes, remains ready to handle GST collections should the agency be tasked to do so in future.
In every other country that has valued-added tax or GST, the collections are vested with the inland revenue office, he said.
IRB collected a record RM175 billion in direct taxes last year, and aims to garner RM176 billion in 2023.
Prime Minister Anwar Ibrahim, who is also finance minister, has ruled out introducing broad-based consumption taxes to prevent burdening the poor. His administration is instead taking steps to target federal subsidies to the needy.
Malaysia’s unpopular and short-lived first attempt at GST — from 2015 to 2018 — was handled by the Customs Department, and was plagued by issues involving refunds.
Analysts had warned the move to scrap the levy in 2018 would reduce government income and widen the budget deficit if not offset by other revenue-raising measures.