Malaysia’s e-Invoicing system has helped authorities collect an additional RM1.009 billion in tax revenue, providing an early sign that the country is making progress in reducing its shadow economy while strengthening its fiscal position.
Chartered Tax Institute of Malaysia (CTIM) council member Harvindar Singh said the e-Invoicing system is a key tool in improving tax compliance as it enables the government to detect business transactions that previously went unreported.
He said a full nationwide rollout covering businesses of all sizes, without exemptions, would bring a significant portion of informal economic activity into the formal economy.
According to Harvindar, e-Invoicing has the potential to significantly expand Malaysia’s tax base and become a major driver in reducing the country’s shadow economy.
“Malaysia has the potential to reduce the size of its shadow economy to below 10 per cent of Gross Domestic Product (GDP), similar to many developed countries,” he said.
However, he estimated that achieving the target could take between three and five years, particularly after all exemptions under the e-Invoicing rollout are phased out.
His comments came after an exclusive report revealed that the Inland Revenue Board (LHDN) identified 52,540 taxpayers who voluntarily declared an additional RM4.07 billion in taxable income following the implementation of e-Invoicing, resulting in RM1.009 billion in extra tax collections.
Harvindar said the increase in government revenue generated through e-Invoicing could also reduce the need to reintroduce the Goods and Services Tax (GST) in the near future.
He explained that stronger tax compliance would ease pressure on the government to bring back GST, although he acknowledged that the current Sales and Services Tax (SST) system still has several weaknesses and that GST remains more efficient from a tax administration perspective.
He also noted that, according to LHDN, the e-Invoicing system has already been designed to support the implementation of GST should the government decide to reintroduce it in the future.
Addressing concerns that e-Invoicing would increase compliance costs for businesses, Harvindar said affordable digital solutions are already widely available.
He said businesses can subscribe to e-Invoicing software and applications for less than RM50 a month, while LHDN has also introduced QR code features that allow transactions to be carried out in a manner similar to QR payments already used by small traders and market vendors.
Harvindar stressed that greater public education and awareness are essential to ensure micro-enterprises and small businesses understand that e-Invoicing is not an unnecessary burden.
In the long run, he said the system would improve transparency, strengthen tax compliance, broaden Malaysia’s tax base, reduce revenue leakages and create a fairer tax system without placing additional pressure on law-abiding taxpayers.
