Key Summary:

The first phase of e-invoicing has started. We believe that e-invoicing will benefit the economy by accelerating accounting processes, reducing fraudulent claims, and enhancing taxpayer compliance. It will also facilitate a smoother transition to the GST system in the future, if necessary, though we doubt that GST 2.0 will be implemented in the near term. Expect minimal impact on automotive companies that have strong own in-house vehicle financing arm, especially those offering convenient payment options with low monthly installments. We currently have a Sell recommendation for MBMR (TP: RM4.70), a Buy for BAuto (TP: RM2.74) and a Hold for SIME (TP: RM2.85).

The e-invoicing will lead to a rise in tax revenues, thus this year’s target of RM243.6bn and lower fiscal deficit are achievable (TA forecast: -4.2% of GDP). However, the tax revenue-to-GDP ratio is still low by historical standard (2024E: 12.3% of GDP) and regional peers. We suggest that the government to set an annual tax revenue target of around 15% to 20% of GDP. Achieving this level of tax revenue would provide the fiscal space needed to support economic development.

The E-invoice Kick-Off

• It has been almost a month since the first phase of e-invoice kicked off on 1 August 2024. The first phase involves companies with annual revenues of more than RM100mn. Phase 2 is set to begin on 1 January next year for companies with annual revenues between RM25mn and RM100mn. By 1 July 2025, all other taxpayers, including micro, small, and medium enterprises, are expected to join, except those with annual turnovers under RM150,000.

• The government has announced a tax deduction of up to RM50,000 per year, available through the 2027 assessment year, for expenses related to environmental, social, and governance initiatives. This includes consultation fees for implementing e-invoicing.

• The government has also agreed to give a 6-month grace period to taxpayers to ensure a smooth implementation of e-invoicing. Through the grace period, the IRB allows all activities or industries to only issue consolidated e-invoices. No penalties will be imposed for non-compliance with e-invoice regulations during this period, if businesses adhere to the consolidated e-invoice requirements.

• The IRB reported about 3,500 companies have participated during the first phase, more than half than the 5,000 target.

Source: TA Research - 22 Aug 2024