The Government’s Move To Tax The Shadow Economy Bearing Fruits Already

Parliament was set to debate on measures to combat the shadow economy. The question was raised during question time during yesterday’s parliamentary sesssion.

The shadow economy refers to an unofficial illicit economic activity that exists alongside a nation’s official economy. The shadow economy exists when unscrupulous activities are left unchecked, such as black market economic dealings and undeclared work.

In Malaysia, the shadow economy is largely formed by non-registered businesses, the under-reporting of business income, unreported sources of income, and illicit trafficking.

But thanks to the introduction of e-invoice in Budget 2024, the shadow economy has already started to shrink.

Datuk Seri Anwar Ibrahim, the Prime Minister of Malaysia and the Finance Minister, introduced the new tax e-invoicing policy in Budget 2024, which states that any taxpayer with an annual income or sales exceeding RM100 million will have to use the e-invoice system on a mandatory basis.

Previously, Deputy finance minister Datuk Seri Ahmad Maslan has revealed that the introduction of the e-invoicing system has already reduced the size of the shadow economy.

The Malaysian shadow economy currently accounts for 21% of the gross domestic product (GDP), compared to 30% last year.

“Malaysian residents aged 18 and above were automatically given a TIN starting Jan 1, 2022, which will help the Inland Revenue Board track people’s tax payment profile and to better address tax evasion issues.

“The e-invoice, which involves digitalising credit, debit and invoice notes, will be implemented in stages next year,” he said in October this year.

The question on the government’s plan to further address the issue of the shadow economy was supposed to be raised in the parliamentary session yesterday, however, the absence of the Member of Parliament raising the question forced the question to be put on the backburner for now.