Impact of E-Invoicing on Customs Declarations: Key Considerations for Local Businesses

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In the past, some local businesses in Malaysia have been under-declaring the true value of imported goods to save on customs duties.

However, when it comes to bookkeeping, they have been recording the transactions at their actual values, which are relatively higher, to take advantage of tax deductions.

With the introduction of the e-invoicing era, these local businesses need to be cautious and consider the following points:

1. Increased transparency: Implementing e-invoicing will increase business transaction transparency. The Royal Malaysian Customs Department will have access to more accurate and real-time data, making it easier to detect discrepancies between declared values and actual transaction values.

In light of the new section 138(4)(aa) of the Income Tax Act 1967, which came into force on 1 January 1 2024, through the amendment made by Act 851 of 2023:

1. Enhanced collaboration between IRB and RMCD: The new provision allows the Director General of Customs and Excise (DGCE) and the public officers under his direction and control to produce, disclose, and use classified material related to electronic invoices. This enables better collaboration and information sharing between the Inland Revenue Board (IRB) and the Royal Malaysian Customs Department (RMCD), facilitating the detection of discrepancies between declared and actual transaction values.

2. Increased scrutiny of e-invoicing data: With access to classified material related to electronic invoices, the DGCE and his officers can more effectively scrutinise the data provided through the e-invoicing system. This increased scrutiny may help identify businesses that continue to under-declare import values while maintaining different records for tax purposes.

3. Potential for joint audits and investigations: Sharing e-invoicing data between the IRB and RMCD may lead to joint audits and investigations into businesses suspected of non-compliance. The provision enables the DGCE to use the classified material to the extent necessary or expedient to exercise his functions, including initiating investigations or supporting ongoing ones.

4. Deterrence effect: The knowledge that the DGCE and his officers have access to classified e-invoicing material may deter businesses contemplating the continuation of under-declaring import values. The increased likelihood of detection and the potential consequences may encourage businesses to adopt fair and compliant practices.

In summary, the introduction of section 138(4)(aa) reinforces the need for businesses to align their customs declarations with their bookkeeping records in the e-invoicing era. The provision strengthens the collaboration between the IRB and RMCD, increases the scrutiny of e-invoicing data, and may lead to joint audits and investigations. Businesses should be aware of these developments and take necessary steps to ensure compliance with customs regulations and tax laws to avoid potential legal and reputational risks.

2. Compliance risks: Continuing to under-declare the value of imported goods while recording higher values in the books may lead to compliance issues. If the discrepancies are discovered during an audit or investigation, businesses may face penalties, fines, or legal consequences for non-compliance with customs regulations and tax laws.

3. Integrated systems: As e-invoicing systems become more integrated with other government systems, such as customs and tax authorities, the chances of detecting inconsistencies between declared and actual transaction values will increase. This integration will make it more challenging for businesses to maintain different sets of records for customs and tax purposes.

4. Reputational damage: If a business engages in unethical practices like under-declaring import values, it may suffer from reputational damage. In the e-invoicing era, where transparency is highly valued, such practices can lead to losing trust among customers, suppliers, and other stakeholders.

5. Transition to fair practices: To avoid potential issues in the e-invoicing era, local businesses should consider transitioning to fair and compliant practices. This may involve declaring the true value of imported goods, even if it results in higher customs duties. By aligning their customs declarations with their bookkeeping records, businesses can reduce the risk of non-compliance and maintain a positive reputation in the market.

In conclusion, the past practice of under-declaring import values while recording higher values in the books may not be sustainable in the e-invoicing era.

Local businesses should prioritise compliance, transparency, and ethical practices to avoid potential legal and reputational risks. They should also consult with tax and customs experts to ensure a smooth transition to the e-invoicing system and maintain compliance with the relevant regulations.

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