KUALA LUMPUR, Oct 18 — Malaysia has agreed to implement the “two-pillar approach” in taxation to create a competitive environment for both foreign and domestic direct investment, said Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz.
The approach, which also prevents cross-border tax evasion, is being studied at present and estimated to begin in 2024, he said in his keynote speech at the 51st Study Group on Asia-Pacific Tax Administration and Research (SGATAR) Annual Meeting 2022 today.
The two-pillar approach refers to the Base Erosion and Profit Shifting (BEPS) 2.0 initiative spearheaded by the Organisation for Economic Co-operation and Development (OECD) and G20.
Tengku Zafrul also said the government intends to phase in the electronic invoicing system (e-invoicing) starting next year in order to improve the efficiency of the government’s tax system.
“The implementation of e-invoicing will also aid in the implementation of a sustainable electronic business ecosystem and provides a more reliable audit trail, resulting in increased tax transparency, and is viewed as one of the primary strategies for increasing tax revenue,” he said.
According to him, this would complement one of the government targets for small and medium enterprises (SMEs) under the 12th Malaysia Plan, which is to digitalise 90 per cent of SMEs’ operations by 2025.
“The implementation of e-invoicing will also support the use of the Tax Identification Number (TIN), which will be mandatory for all documents and instruments.
“This will be a measure to broaden the collection of income taxes, ensuring a sustainable source of revenue for the government,” Tengku Zafrul explained.
He added the implementation is consistent with the OECD report on the digital identification of taxpayers, which recognises digital identity as one of the key building blocks for future seamless tax administration.
Meanwhile, Inland Revenue Board of Malaysia (LHDN) chief executive officer Datuk Mohd Nizom Sairi said e- invoicing will tighten up the leakages in the taxation system and next year will be the year to prepare towards implementation.
“We are looking into having a pilot run maybe in 2024,” he told reporters on the sidelines of the meeting.
Mohd Nizom said SGATAR has played a vital role to provide a platform for enhancing the performance of tax administrations in the Asia-Pacific region by promoting collaboration and communication among member tax administrations.
“This time around, the heads of delegations will focus on three areas of discussion, namely addressing new challenges in tax administration with a focus on human resource and organisational structure; improving voluntary compliance; and recent development in the tax administration and updates on tax reform,” he said.