In May 2023, the Inland Revenue Board of Malaysia (LHDN) announced a phased rollout of e-Invoicing, set to begin on August 1, 2024. So, what does this mean for you as a car buyer?
What exactly is e-Invoicing?
An e-Invoice is a digital record of a transaction between a buyer and a seller, formatted in a structured, machine-readable way. LHDN provides two methods for e-Invoice transmission: through the MyInvois portal and via an application programming interface (API) integrated with companies’ tax systems. The goal is to promote automation, reducing the time needed for invoices to reach customers and get approved.
In addition to speed, e-Invoicing improves accuracy by minimizing errors or omissions that often occur with manual invoicing. This is particularly significant in car sales, as it eliminates discrepancies in invoices sent between parties – including LHDN – ensuring the declared amount matches the actual transaction.
No more “full loans”
This change effectively ends the practice of offering “full loans” for cars. A full loan means not having to pay the usual 10% downpayment on a 90% hire purchase loan. To achieve this, sales agents inflate the invoice price when submitting a loan request to the bank, ensuring the approved loan amount matches or exceeds the car’s actual price.
From August 2024, e-Invoicing through MyInvois will significantly impact car buyers. Why would someone opt for a full loan? Often, it’s because they can’t afford the 10% downpayment but still want to purchase a particular car. Sales agents might mark up the invoice price by adding accessories (tinting, cameras, etc.) to inflate the total purchase price before submitting the loan application.
For example, if a car is priced at RM40,000 on-the-road, the maximum possible loan amount (90% of the price) is RM36,000, requiring a 10% downpayment of RM4,000. If the buyer can’t afford the downpayment, the sales agent might agree to a “full loan” by inflating the invoice with add-ons, raising the total price to RM45,000. This makes the maximum loan amount RM40,500 (90% of RM45,000), covering the car’s cost, hence a “full loan.”
More transparent system
Previously, sales agents could submit different invoice amounts to the government, but the e-Invoicing system is designed to prevent such omissions. With e-Invoicing, all invoices must be processed through LHDN, preventing sales agents from marking up invoices as all invoice figures must match.
Although technically not allowed, some banks offer full loans as part of special promotions with car manufacturers. Banks do cap the amount of mark-up since it’s unreasonable for a RM40,000 car to be marked up by 50% (or RM20,000) in accessories. In some cases, sales agents might invoice an amount exceeding the car’s price, allowing buyers to pocket the extra amount. However, this practice is unwise as it increases the loan amount, monthly instalments, and insurance premiums.
Starting in August, e-Invoicing will be mandatory for taxpayers generating over RM100 million annually from commercial activities. By January 2025, this requirement will extend to those with annual revenues between RM25 million and RM100 million. By July 2025, all taxpayers engaged in commercial activities will be required to adopt e-Invoicing, although voluntary early adoption is allowed.
What are your thoughts on e-Invoicing? Have you ever encountered full loan offers in the past?
Source: here
Also read: LHDN Exempts Businesses Under RM150K from E-Invoicing
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