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China Press Feature: Impacts of LHDN E-Invoice on Micro and Small Businesses

by Catherine Bermejo for Blog Post
China Press Feature: Impacts of LHDN E-Invoice on Micro and Small Businesses

China Press Feature:

Impacts of LHDN E-Invoice on Micro and Small Businesses

| Why does the Malaysian government promote electronic invoices?

CEO & Founder of QNE - Wilkinson Sam: E-invoice is not a new tax system; it is a tax reform. It plays a vital role in combating tax evasion by establishing more accurate and transparent records of financial transactions. This increased transparency makes it harder for businesses to evade taxes.

| What is the difference between E-Invoice and GST?

Business Coach of QNE - Loh Wei Hoong: Mr. Sam is a GST Speaker. He has given many talks on GST nationwide during GST Era in Malaysia, especially the tax code knowledge in GST accounting software.

In the era of Goods and Services Tax (GST), only businesses with annual revenue of RM500,000 and above need to register for GST. But in the era of E-Invoice, all businesses must comply, which covers millions of businesses.

The government has brought forward its timetable from 2027 to July 1, 2025, which only leaves us with 18 months. This will increase the need for compliance in a short period of time, and if businesses are only preparing at the last minute, I can foresee some businesses being left behind by not being able to get assistance from accounting firms and software company, especially those that are still using have installed desktop accounting software (Windows Based Accounting Software) and needing to upgrade one by one to comply with e-invoice.

| What impact does E-Invoice have on small and medium-sized businesses:

Sam: Given the current state of the economy, the additional cost of E-Invoice may be a burden for some businesses. In a few years, if they are unable to handle the tax preparation and optimize their tax calculations, it is foreseeable that some businesses may be seriously affected by non-compliance with E-Invoice, non-deductible costs and fees in the tax computation, fines, etc. and higher taxes paid to the Internal Revenue Service.

For those businesses that can cope with the challenges, they will survive and they will perform better in the era of E-Invoice, because after the implementation of E-Invoice, the threshold to run a business will be higher and competition will be reduced.

Many micro and small business owners typically outsource their accounting work to accounting firms, which typically prepare accounting records and books only once a year. For example, before submitting tax returns to the Inland Revenue Department of Malaysia (LHDN), they will usually consult their accountants about how much profit they should declare and how much tax they want to pay. Businesses will usually say to the accounting firm, how much tax do I want to pay this year? Can you help me adjust it?

The accounting firm then often gets very creative in making some adjustments, including sales, costs, expenses, etc.

 

Now, with the implementation of E-Invoice, things are changing. Businesses are now required to submit invoices to the Inland Revenue Department of Malaysia on a daily or latest monthly basis. This means that sales are no longer easily manipulated, costs and expenses for which there is no E-Invoice cannot be deducted from their tax computation, so the Inland Revenue Department will know the business’s monthly sales, costs and expenses every month.

Profit is sales minus costs and expenses, which means that the Internal Revenue Service also knows the business’s monthly profit. If the business only prepares their accounting records once a year, at the end of the year, Do you think the accounting firm still able to practice the creative accounting and assist the businesses to adjust the accounting records?

Therefore, in the era of E-Invoice, businesses will definitely pay more taxes to LHDN!

| Is there any way you can advise businesses to minimize higher taxes and penalties?

Loh: Yes, In fact, there is ways for businesses to minimize higher taxes and penalties. They have to change the way they handle their accounting records. They should diligently prepare, review, and assess their accounting reports monthly, and calculate estimated taxes regularly. Relying on annual report preparation means discovering tax liabilities too late.

Here are 3 vital reasons for monthly accounting report preparation:

  1. E-Invoices must correspond with actual transaction dates; for instance, costs incurred in February should have E-Invoices validated by LHDN in the same month. A commission paid in February requires a February-dated Self-Billed E-Invoice validated by LHDN, not in December.
  2. For costs and expenses to be tax-deductible, businesses must secure validated E-Invoices monthly.
  3. Business owners typically manage to acquire E-Invoices before year-end tax calculations. However, if the E-Invoices for many expenses are dated towards the year's end, consider this scenario: steady profits are earned each month, but a substantial loss occurs in December. This pattern could heighten the likelihood of a tax audit.

| What are the challenges that small or micro businesses encounter when managing their accounts on a monthly basis?

Loh: I see three main challenges:

Managing monthly accounts necessitates skilled accounting staff. For businesses opting to employ in-house accountants for comprehensive account management, the expense can reach several thousand Ringgit monthly, posing a hefty financial strain on small enterprises.

Companies aiming to cut costs by internally managing their accounts without proper expertise may still require assistance from accounting firms.

With the advent of E-Invoice, the need for monthly accounting services is expected to surge, potentially outstripping the capacity of accounting firms. Should these firms persist with traditional methods, their accountants may find it challenging to cope with the increased workload.

Hence, it's advisable for businesses to leverage Artificial Intelligence (AI) and Cloud Computing in partnership with accounting firms for efficient account management. The solution lies not solely in the hands of accounting firms or businesses but in a synergistic approach combining AI and Cloud-based solutions.

Adopting this strategy can significantly save time for accounting firms while helping businesses minimize errors that could result in higher tax liabilities.

| What obstacles will accounting firms encounter as they experience a surge in demand?

Sam: Currently, most accounting firms are still using Windows Based Accounting Software. In the era of E-Invoice, using Windows Based Accounting Software actually presents 4 major challenges:

  1. There is no online connection between the software used by businesses and accounting firms. Business owners issue E-Invoice in their own accounting software, but accounting firms have to re-enter data, wasting a lot of time.
  2. Similar to the GST era, E-Invoice policies will be frequently updated, and most of the time, Windows Based Accounting Software needs to be updated too. Updating the software version and data is a very time-consuming task.

For example, if an accounting firm has 100 company clients accounting database, they must upgrade 100 times. If the E-Invoice policy changes 3 times a year, the accounting staff must perform the upgrade action 300 times, and they must also make appointments with the software supplier to carry out the upgrade.

  1. Risk of data inconsistency - While some Windows Based accounting software may allow users to export and import data, importing data from different versions into the accounting firm's software could lead to greater problems if only one side is updated to the latest version.
  2. There's a common misconception that in the era of E-Invoice, if buyers cannot supply mandatory information like TIN, address, contact number, email, etc., issuing an invoice is not necessary. This is incorrect. We are still obligated to issue a regular invoice to our buyers, and they retain the option to request an E-Invoice based on the regular invoice.

Therefore, a best practice is to include a QR code on the regular invoice. This QR code, when scanned, directs the buyer to a web portal provided by the accounting software. There, they can input all required E-Invoice information and directly request a validated E-Invoice from LHDN.

Since Windows Based Accounting Software is not consistently online, enabling buyers to scan a QR code, extract data from the software, and submit an invoice to request a validated E-Invoice for online processing becomes a challenging task and Handling such processes through Windows Based Accounting Software can lead to numerous complications.

Consequently, I recommend that accounting firms seize this chance to innovate and adopt cutting-edge technologies like Artificial Intelligence (AI) and Cloud Solutions. This shift will aid in efficiently managing their clients' accounts and ensure these firms remain at the forefront of technological advancements.

| What is the role of QNE AI Cloud Accounting in E-Invoice era?

Loh: QNE collaborates with a group of certified accounting firms. Both parties will share certain costs to reduce the compliance expenses of E-Invoice for their clients, especially micro and small business owners.

In this partnership, certified accountants are allowing their clients to access our AI cloud accounting platform for various tasks like online invoicing, receipts, refunds, and online payments collection. Accountants can access their client data anytime to prepare monthly accounting reports, comply with E-Invoice regulations, and utilizing strategies to minimize tax liabilities.

QNE AI Cloud Accounting platform includes OCR technology to convert images into data, streamlining the data entry process for accountants. This greatly saves time for accountants in data entry, business owners simply upload document photos to our platform, in just a few seconds, images are smoothly transformed into accurate accounting data.

Furthermore, understanding that most of the business owners often prefer not to learn accounting software, we offer a free AI chatbot to our clients at accounting firms.

This chatbot allows business owners to easily obtain crucial financial information in their phone anytime anywhere, like monthly sales and profits or current bank balances. The chatbot responds immediately, whereas previously business owners had to wait until the end of the year to know their real sales and profits.

With QNE AI Chatbot, enables business owners to constantly stay informed about their financial status, a significant improvement over the traditional end-of-year updates. We believe business owners will greatly value and prefer this approach in their collaboration with accounting firms.

| Why we want to do that?

Sam: Our perspective is that the objectives of businesses should extend beyond just making profits. Echoing Jack Ma's words, 'Your profits increase with the magnitude of the problems you solve,' is a principle we deeply resonate with. Embracing a philosophy centered on aiding others is crucial. When we concentrate on addressing issues during the times our customers need us most, profits naturally ensue.

| Call for action:

Loh: If there are accounting firms that recognize and align with our philosophy, I invite you to collaborate with us. If we can assist businesses during these challenging times, I assure you that you will be able to build a substantial client base.

For businesses, especially those facing high bookkeeping and accounting costs, please contact us. Enter 'E-Invoice Subsidy' at WhatsApp (Click Here). We will subsidize our AI tools to significantly reduce your bookkeeping and accounting costs. This is possible because our certified accountant partner can absorb the compliance costs of E-Invoice, as they can use our effective AI cloud accounting platform at a very low cost thanks to our subsidy.

Finally, I would like to thank our existing certified accountant partners for being willing to assist businesses in the era of E-Invoice. Thank you!

For those accounting firms and business owners wanted to contact us for the above arrangement, you can WhatsApp us by entering 'E-Invoice Subsidy' at WhatsApp (Click Here)."

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