Southeast Asian tax administrations have been able to reimagine the future of tax collection due to the digital revolution. With the increasing emphasis on compliance by design, electronic invoicing has emerged as a crucial component of the tax administration toolkit.
An increasing number of tax administrations in Southeast Asia are imposing mandatory e-invoicing requirements as they advance to the subsequent stage of their digital transformation process.
E-invoicing has already been adopted in Vietnam and Indonesia. However, in Malaysia, it will only be mandatory for taxpayers with an annual revenue of RM100 million or more beginning in June 2024. Subsequently, the requirement will be extended to taxpayers with lower revenue thresholds. Electronic invoicing is currently optional in Thailand and Singapore, among other countries.
The divergent strategies and degrees of advancement regarding the implementation of electronic invoicing are indicative of the distinct circumstances and obstacles encountered by each tax administration in Southeast Asia. As an illustration, the Bureau of Internal Revenue (BIR) in the Philippines ultimately surmounted legal obstacles subsequent to the implementation of the Electronic Invoicing/Receipting System e-filing platform, which was mandated by the Tax Reform for Acceleration and Inclusion Act of 2018.
In the meantime, Malaysia's electronic invoicing initiatives are a component of the Inland Revenue Board of Malaysia's (IRBM) broader strategy to digitalize tax administration.
In the context of Indonesia, the implementation of e-invoicing seems to commence with the transformation of traditional value-added tax (VAT) invoices into an electronically readable format. This conversion enables the tax administrator to enhance the monitoring and matching of VAT invoices.
The primary objectives of digital tax administration are generally threefold.
The first objective is to increase cost savings and efficiency. Through the implementation of digitalization in end-to-end compliance processes, the system can effectively eliminate substantial quantities of paper. Consequently, the following ensues:
Second, revenue authorities can enhance the quality of insights derived from the digitized data by employing cutting-edge technologies, including machine learning, autonomous process automation, and advanced analytics. What was previously a deluge of insufficient information is now a treasure trove of knowledge. This holds significant relevance for revenue authorities, as they strive to address not only deliberate tax evasion and fraud but also the more extensive economic predicament posed by such activities. In turn, this explains why the digitalization of goods and services taxes, and electronic invoicing have frequently led the way in the initiatives of numerous nations.
Third, a potentially crucial benefit for taxpayers is that the digitization of invoices facilitates closer collaboration between revenue authorities and real-time operations. This reduces the time required to process tax returns, tax assessments, and the duration of tax disputes. This is a positive development; anything that can reduce the amount of funds that remain bound up in tax provisions and increase tax certainty will be beneficial for business.
Singapore is one of the first countries that have introduced e-Invoicing in the ASEAN. The obligation is active since 2018, which has become mandatory for government authorities based on the PEPPOL interoperability framework. The main reason for such action was to improve business efficiency, reduce costs, improve the process of payment cycles, and lay a good basis for progressive digitization.
The Indonesian government introduced e-Faktur Pajak, implemented by the DGT (Director General of Taxation), and made it mandatory in 2016 for companies to use e-invoices, in order to guarantee that the enforcement authority is properly notified. The main goal of the Indonesian government has been to prevent tax fraud, while also improving the trade.
E-invoices have been mandatory in Vietnam since July 1 2022 for all taxpayers. The system promises to save time and money, which will contribute to greater efficiency of businesses and tax authorities. All businesses must issue e-invoices to buyers, digitally report all their transactions to the tax authority (GDT), and register (on the GDT website) before using e-invoices, in order to obtain approval from the General Tax Department (GDT).
The Philippines is the latest country in the Asia-Pacific region to advance on their e-invoicing regulations. Following in the footsteps of an increasing number of countries worldwide, the Philippine Government is planning to implement electronic invoicing controls by 2022 in order to facilitate tax compliance.
Electronic invoicing is currently not mandatory in Thailand. However, the Thai government is taking steps towards digitizing the tax system to create a comprehensive digital tax ecosystem that should be available by 2028. Mandatory e-invoicing will be rolled out in phases starting in 2024.
2. Malaysia and Brunei
Elsewhere in the ASEAN region, Malaysia and Brunei are also implementing e-invoicing systems, have either adopted or are considering PEPPOL network as their e-Invoicing standard as it will facilitate interoperability in cross-border business processes.
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Currently, it is difficult to establish the status of e-invoicing in Asia, and we shall see how its adoption evolves in this vast and diverse region. In any case, the use of e-invoicing there may become standard - both to improve control and to speed up business transactions, reminding businesses that the invoice is at the end of every business process and, if digitised in whole or in part, can be more efficient and faster, saving time and money.
However, this does not only include adopting an innovative method of sharing tax records but also creating a new working environment in which behaviors and processes must be adjusted.
Source: EY, COMARCH, ITS