The nationwide implementation of e-invoicing is more than just a technological shift; it represents a fundamental change in how the Inland Revenue Board of Malaysia (LHDN) will assess and audit businesses. For the first time, LHDN will have a near real-time view of your company’s core financial transactions.
This new level of transparency means the old way of “tidying up the books” at the end of the financial year is no longer viable. Understanding how LHDN will use this data is the key to ensuring your business remains compliant and avoids unnecessary scrutiny.
Understanding Your “Schedule 1”: Your Business’s Open Book
As per the official guidelines, every transaction submitted through the MyInvois portal contributes to a real-time financial summary for your business, which we can call your “Schedule 1”. It is built from:
- Your Income: All the e-invoices you issue to customers (including standard, consolidated, and self-billed e-invoices issued on your behalf).
- Your Expenses: All the e-invoices you receive from your suppliers (including standard and self-billed e-invoices you issue for expenses).
This allows LHDN to see an Estimated Profit for your business on an ongoing basis.
How LHDN Will Analyze Your Data: 6 Key Compliance Checks
With this real-time data, LHDN can now perform sophisticated, data-driven analysis to identify potential tax compliance risks. Here are the key checks every business owner should be aware of:
1. Comparing Real-Time Data with Tax Returns LHDN can now directly compare the total income and expenses recorded via e-invoices throughout the year with the figures you declare in your annual corporate tax return (Form C). Any significant discrepancy will be an immediate red flag for an audit or inquiry.
2. Benchmarking Against Industry Averages The system allows LHDN to analyze data across entire industries. They can now compare your company’s declared profit margins, major expenses, and revenue patterns against the average for other businesses in your specific sector. If your business’s performance is a significant outlier, it may trigger further investigation.
3. Cross-Checking with Bank Transactions With greater data integration between government agencies, LHDN can more easily cross-reference the flow of money in your company’s bank accounts with the transactions declared via e-invoicing, looking for undeclared income or unsubstantiated expenses.
4. Scrutinizing Cross-Border Transactions E-invoices for cross-border transactions require specific details. This allows LHDN to easily identify payments made to foreign suppliers and cross-check whether the appropriate withholding tax has been paid and remitted.
5. Analyzing Related Party Transactions Transactions between related companies are a key focus area for transfer pricing audits. The e-invoicing data will make it easier for LHDN to identify these transactions and scrutinize whether they adhere to the arm’s length principle.
6. Year-on-Year Comparison LHDN can now easily track your business’s performance over multiple years. Any sudden, unexplained drops in revenue or profit margins could prompt a query from the tax authorities.
The End of “Wait-and-See” Accounting
The key takeaway is that meticulous, accurate, and real-time bookkeeping is no longer just good practice—it is a prerequisite for survival in the e-invoicing era. Errors or miscategorized expenses that might have been corrected at year-end are now visible to LHDN much earlier.
How to Prepare Your Business for This New Reality
In this new era of tax transparency, proactive and professional financial management is your best defense. The integrity of the data you generate every day is paramount.
SMONE’s Cloud Accounting & Bookkeeping and Financial Reporting & Analysis services are designed for this new reality. We ensure your transactions are correctly recorded in real-time and your e-invoices are compliant from the start. This gives you the confidence that the data LHDN sees is a true and fair representation of your business.
Don’t wait for a query from LHDN. Contact us today to build a robust and compliant financial system for your business.
(Disclaimer)
This article is for general informational purposes. It does not constitute legal or tax advice. Please consult with a qualified professional for advice tailored to your specific situation.