PETALING JAYA: An economist has urged the government to develop a specialised fiscal scheme for micro small and medium enterprises (MSMEs) to incentivise their compliance when implementing e-invoicing.

Carmelo Ferlito of the Center for Market Education said such a scheme would make it easier for businesses to do their accounting and pay taxes while also helping them grow.’

“My recommendation would be to identify a turnover threshold or a maximum number of employees threshold so that a business may qualify according to one of these categories.

“I believe that such an engagement would also result in the rationalisation of the tax system, as in recent years we have seen the multiplication of new micro-taxes.

“The rationalisation should apply particularly to MSMEs, together with a lower degree of accounting compliances,” he told FMT.

Ferlito was commenting on the e-invoicing system to be rolled out gradually this year to bolster tax evasion detection.

About 4,000 companies with incomes exceeding RM100 million will be the first cohort involved in e-invoice implementation, commencing on Aug 1.

Ferlito said the current e-invoicing approach, starting with larger firms and moving to smaller ones, would disproportionately burden MSMEs which make up 97% of local businesses.

“When applied to the generality of firms, the new scheme may find most of them unprepared to implement it in practical terms, and the scheme itself may become for micro-businesses an incentive to elude it or to eventually cease operations,” he said.

Felito said inspiration could be drawn from Indonesia’s revenue-based tax regime, where small business owners pay taxes equivalent to 0.5% of their monthly revenue.

“A special micro-enterprise tax regime to reduce the size of the informal economy is common to other emerging-market economies with large informal sectors, such as Mexico, for example.

“However, the revenue threshold for eligibility seems to be high in the case of Indonesia. This could be lowered, while additional benefits could be offered to participants in the regime such as access to book-keeping assistance and government support programmes,” he said.

He added that encouraging micro-businesses to exit the informal economy was crucial for long-term national development through the promotion of automation, technical progress, and social mobility.