Malaysia’s Inland Revenue Board is relying on the start of electronic invoicing next year to narrow the country’s tax gap and widen the revenue base even as the government waits on implementing a new consumption tax.
(Bloomberg) — Malaysia’s Inland Revenue Board is relying on the start of electronic invoicing next year to narrow the country’s tax gap and widen the revenue base even as the government waits on implementing a new consumption tax.
The e-invoicing initiative, slated to start with 4,000 businesses in June 2024, will help tackle 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 in the future, according to IRB Chief Executive Officer Mohd 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 IRB, 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 175 billion ringgit ($38.6 billion) in direct taxes last year, and aims to garner 176 billion ringgit 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.
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Excerpts from the interview:
- Malaysia’s tax amnesty program has so far drawn more than 5,000 people, and IRB aims to collect 1 billion ringgit via this program; the voluntary disclosure program started June 6 and ends in May 2024
- IRB has also introduced automatic registration of tax numbers for adults in its efforts to surface new taxpayers and widen the base
- IRB aims to give “more certainty” to taxpayers, minimize disruption and reduce turnaround time for audits and investigation
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