KUALA LUMPUR: A review on tax laws is needed to ensure their relevance and effectiveness in combating misuses of tax structures and to address existing loopholes.

Malaysia Association of Tax Accountants vice-president Dr Mohd Fairuz A. Razak said regular evaluations of tax legislation and administrative procedures were essential to keep pace with evolving challenges.

It will also maintain the integrity and fairness of Malaysia's tax system, he said.

He said technological advancement and economic growth raised many challenges for governments to ensure tax systems and commercial processes remain fit for their purposes in a digital world.

When citing the newly-introduced e-invoicing system which will begin in Malaysia this year, Fairuz said technological advancement and economic growth have led to these challenges that beset taxation systems.

"While Malaysia's tax system may have been designed to address various forms of tax evasion and avoidance, it must recognise that financial practices and economic landscapes continually evolve.

"Factors such as technological advancements, changes in global economic conditions, and emerging tax planning strategies may necessitate adjustments to Malaysia's tax framework," he told the New Straits Times.

Additionally, addressing specific loopholes or weaknesses in the existing system could enhance its ability to deter tax evasion and avoidance, he said.

On Thursday, Deputy Finance Minister Lim Hui Ying told the Dewan Rakyat that the e-invoicing system will be rolled out gradually this year, and it will enable more effective detection of tax evasion.

In January, Inland Revenue Board (IRB) Director of Policy Operations Section, Tax Operations Department, Dr Rasyidah Che Rosli had said it will kick off its e-invoice pilot project in May this year to test the effectiveness of the system and ensure that the integration of the companies' and the IRB's systems run smoothly in time for its implementation in August this year.

Rasyidah had also said that more than 50 companies have confirmed their participation in the pilot project.

Meanwhile, Fairuz said the government may need to extend further assistance to allow smaller businesses to familiarise with e-invoicing because many small and medium-sized enterprises (MSMEs) may lack the necessary expertise or resources to navigate the complexities of e-invoicing systems.

"The Malaysian government and various industry bodies may have provided training programmes or resources to help businesses, particularly MSMEs, develop the skills required to utilise e-invoicing effectively.

"However, the effectiveness and reach of these programmes can vary, and some businesses may still struggle to access or afford such training."

He said addressing these challenges will require a multi-faceted approach, including targeted training programmes, financial support measures; and improving technology infrastructure and regulatory clarity.

"Despite these potential challenges, experiences from past implementations of similar digital systems, such as e-filing for taxes, suggest that with time and support, businesses can adapt and benefit from the efficiency and convenience offered by e-invoicing.

"As MSMEs become more familiar with the technology and its advantages, the transition will likely become smoother, ultimately contributing to improved productivity and compliance across the board."

As Malaysia gears up on e-invoicing, there are several key learnings to ensure its e-invoicing rollout is a success, said Fairuz.

One of them is the adaptation of a suitable model, with two main options, namely a centralised model where businesses connect directly to the tax authority's portal to clear invoices or a decentralised model where businesses use approved third-party service providers to transmit e-invoices and report the data to the tax authority, he said.

He also stressed the importance of a clear scope, whether the system covers only business-to-business transactions or includes transactions with customers as well.

"The government need not build a system from the ground up.

"Existing networks are already proven to perform these services, such as Peppol, an open system that enables efficient exchange of e-invoices and other business documents."

In addition, data security and authentication are critical to e-invoicing; and that no physical devices should be necessary to authenticate or validate documents, he said.

Fairuz said smooth adoption requires coordinating with businesses in advance and providing complete technical guidance.

He said the tax authority should also provide validation and error codes in advance, as well

https://www.nst.com.my/news/nation/2024/03/1032123/msia-association-tax-accountants-weighs-rollout-e-invoicing-system