Tax Reconciliation in Malaysia: What has Changed Post e-Invoicing Mandate?

Malaysia has recently introduced the e-invoicing mandate, bringing a major change in how businesses manage tax data and file returns. With this mandate, businesses must now reconcile their internal records with the data submitted to the Inland Revenue Board of Malaysia (IRBM) through e-invoicing and with their tax filings. 

This shift would make it easier for enforcement agencies like IRBM and Royal Malaysian Customs Department (RMCD) to detect inconsistencies, triggering audits or investigations. As a result, tax reconciliation in Malaysia is evolving, and businesses now require more powerful tools to ensure compliance and avoid issues. 

Here’s everything you need to know about tax reconciliation in Malaysia, with a focus on the role of e-invoicing.

What is Tax Reconciliation?

Tax reconciliation is the process of ensuring that a business's financial data reports align with the information submitted to the tax authorities. It involves matching internal business records, such as invoices, sales registers, and accounting books, with the tax returns filed with relevant government bodies like the Inland Revenue Board of Malaysia (IRBM) or the Royal Malaysian Customs Department (RMCD). 

Tax reconciliation aims to confirm that the taxes reported and paid match the actual financial transactions and that businesses comply with tax laws.

• Pre-E-Invoicing Era: Businesses had to manually match various records—such as bank statements, sales invoices, purchase invoices, and tax returns—ensuring that the data in their financial records aligned with the tax filings submitted to the Inland Revenue Board of Malaysia (IRBM). 
• Post-E-Invoicing Era: The IRBM now has real-time access to detailed transaction data submitted through e-invoices. This requires three-way data matching between internal records, e-invoice data, and tax filings. Additionally, businesses must now reconcile their purchase data, ensuring that both sales and purchase transactions are accurately reflected in their tax filings.

Why is Tax Reconciliation Important?

Tax reconciliation ensures that the information reported to tax authorities is accurate and consistent with a company’s internal financial records. This reduces the risk of discrepancies that could trigger audits or investigations. By regularly reconciling tax data, businesses can avoid penalties, ensure the correct tax is paid, and maintain transparent records.

SST, Excise and Custom Duty Compliance

In Malaysia, the Royal Malaysian Customs Department (RMCD) manages taxes such as Sales and Service Tax (SST), GST, excise duties, and customs duties. Much of the data for these taxes is collected through e-invoicing and shared by the Inland Revenue Board of Malaysia (IRBM). This allows RMCD to cross-check the e-invoice data with tax filings for accuracy.

For example, SST returns must match the sales and SST charged on all e-invoices. RMCD can easily detect discrepancies by comparing the e-invoice data, which could trigger an audit.

Corporate Income Tax Compliance

Similarly, corporate income tax filings are based on revenue and expenditures, both of which must be supported by e-invoices. Any revenue or expense without a corresponding e-invoice can lead to an audit or investigation. 

Tax reconciliation with e-invoicing data ensures compliance and avoids penalties or legal issues.

Tax-Related Data Collected by IRBM Through E-Invoicing

The introduction of e-invoicing has brought about a significant shift in the way the IRBM collects and processes tax-related data. The key data collected through e-invoicing includes:

• Parties Involved: Taxpayer Identification Numbers (TINs), registration numbers, and contact details for both the supplier and buyer.
• Invoice Details: e-invoice type, code/number, date, currency, and total amount.
• Product/Service Information: Item descriptions, quantities, unit prices, tax types, tax rates, discounts, and exemptions.
• Payment Details: Payment modes, bank account details, and payment terms.
• Annexures for Import/Export: For transactions involving imports or exports, the e-invoice data will also include shipping details, customs forms, and tariff codes.

This data is now shared between IRBM and RMCD, ensuring that both tax authorities can access real-time information on a company’s tax liabilities.

What should be Matched in Tax Reconciliation in Malaysia?

Tax reconciliation involves matching several key documents, including:

How to Reconcile Tax Data with E-Invoicing Data

Tax reconciliation with e-invoicing data ensures accurate tax reporting and compliance. Here’s a concise guide to the process:

1. Understand E-Invoicing Data: Familiarize yourself with key data points in e-invoices (e.g., supplier/buyer details, invoice amounts, tax rates) and ensure alignment with your internal records.
2. Collect Internal Data: Gather your sales registers, purchase register, account statements, and tax filings (SST, corporate income tax, etc.).
3. Perform Initial Matching: Match invoice numbers, tax amounts, revenue, expenses, and total values from your internal records with e-invoice data.
4. Identify and Correct Discrepancies: Investigate discrepancies and correct errors, such as missing or rejected invoices, credit notes, and debit notes, and ensure all data aligns.
5. Automate Reconciliation: Instead of manually reconciling data through excel, use automation tools like ClearTax’s e-invoicing portal to streamline the process and reduce errors.
6. Track Failed or Rejected E-Invoices: Monitor the status of e-invoices and address rejected or failed submissions in real-time.
7. Generate Reports and Maintain an Audit Trail: Create reconciliation reports and keep detailed records of all adjustments for transparency and audit readiness.

ClearTax E-Invoicing Solution for Tax Reconciliation in Malaysia

ClearTax, a leading e-invoicing solution provider, offers a comprehensive platform to streamline tax reconciliation in the e-invoicing era and ensure compliance with Malaysia’s evolving tax regulations. Here's how ClearTax empowers businesses:

Automated Synchronization and Reconciliation

ClearTax automates synchronization of e-invoice data from the MyInvois portal to internal accounting systems. This eliminates manual data entry, reducing errors and aligning internal sales registers with submitted e-invoices.

• Automated field-level matching across 13+ key data points.
• Reconciles sales, purchase, and tax data from ERP systems with IRBM submissions.
• Processes thousands of documents per second for rapid and accurate results/

Real-Time Discrepancy Detection and Alerts

ClearTax identifies mismatches between internal records and e-invoices submitted to IRBM, offering real-time notifications to address discrepancies promptly.

• Alerts for rejected or failed invoices.
• Root cause analysis (RCA) for quick resolution.
• Live dashboards for tracking e-invoicing health.

Comprehensive Reconciliation Tool

The platform ensures precise alignment of internal records with e-invoice data, matching key fields like buyer/seller details, tax amounts, and payment terms.

• Consolidates transactions across multiple sales channels (e.g., in-store, online, B2B, B2C).
• Supports reconciliation of payment records, ensuring all payments match e-invoices.
• Includes purchase data reconciliation to ensure all expenses are accurately reported and tax credits are correctly claimed.

Cross-System Integration

ClearTax integrates seamlessly with ERP and accounting systems, facilitating smooth data flow between internal processes and the IRBM’s e-invoicing system.

• Direct synchronization with MyInvois and LHDN systems.
• Tailored integration for over 100 Malaysian enterprises in Phase 1 e-invoicing rollout.

Monitoring Rejected and Cancelled E-Invoices

ClearTax Portal tracks rejections and cancellations in real-time, enabling businesses to address issues and reissue compliant e-invoices promptly.

• Tracks the status of failed or rejected submissions.
• Automatically suggests corrective actions for resubmission.

Audit Trails

ClearTax maintains a detailed audit trail for every transaction, including amendments and rejected e-invoices, ensuring transparency during audits.

• Comprehensive logging of reconciliation activities.
• Reports aligned with LHDN and RMCD requirements.

Conclusion

As Malaysia adopts mandatory e-invoicing, tax reconciliation is shifting from a manual process to a real-time, streamlined system. Integrating e-invoicing data with IRBM and RMCD enhances transparency and minimizes errors, ensuring compliance with tax regulations. Accurate reconciliation is essential to avoid penalties, prevent audits, and meet tax obligations. 

ClearTax offers a powerful e-invoicing solution that automates sales and purchase reconciliation, tracks discrepancies, and helps businesses comply with tax laws. This ensures accuracy and reduces risks in the evolving e-invoicing landscape.