No more ‘full loan’ for cars from August 2024? e-Invoicing via MyInvois to affect car buyers soon

The Inland Revenue Board of Malaysia (LHDN) announced in May 2023 that it would implement e-Invoicing in stages, with the first set to begin from August 1, 2024. So, what’s it all about and how does it affect you, the car buyer?

Basically, an e-Invoice is a digital representation of a transaction between buyer and seller, formatted in a structured, machine-readable manner. Two e-Invoice transmission mechanisms are being provided by LHDN, which is through the MyInvois portal and/or application programming interface (API) tied in with the tax systems of companies. The government says that the introduction of e-Invoicing is to promote automation, which reduces the time it takes invoices to reach customers and get approved.

Speed aside, another benefit is accuracy, as e-Invoicing can minimise errors or omissions in information that can happen with manual invoicing. This is significant in the buying and selling of cars, as it essentially eliminates discrepancies in the invoices sent between parties – including LHDN – since the amount declared must match.

This should effectively eliminate scenarios where a car buyer is offered a “full loan” – this is when you do not need to pay the usual 10% downpayment in a 90% hire purchase loan. To arrive at the “full loan” amount, the sales agent marks up the price in the invoice when submitting a loan request to the bank, so that the approved loan amount matches or exceeds the actual price of the car.

Why would someone take a full loan? Perhaps he or she can’t afford the minimum 10% downpayment but they still want to buy a particular car. One way to mark up the amount in the invoice is by adding on a bunch of accessories (tinting, cameras, etc) to drive the purchase price up before submitting the loan application.

As an example, let’s assume a car is priced at RM40,000 on-the-road, which would mean the maximum possible loan amount (90% of the price) is RM36,000, with the remaining being the 10% downpayment of RM4,000.

The buyer of the car can’t afford the downpayment and both parties agree to a “full loan,” so the sales agent inflates the invoice with some add-ons, boosting the total price to RM45,000. Now, the maximum loan amount becomes RM40,500 (90% of RM45,000), which is enough to cover the cost of the car, hence a “full loan.”

After this, the sales agent could submit an invoice with a different amount to the government – this is the omission of information that the e-Invoicing system is supposed to prevent. With e-Invoicing, all invoices must go through LHDN, so the SA can’t simply mark up an invoice as the numbers on all other invoices must tally.

Technically, “full loans” aren’t allowed but they are publicly offered by some banks as part of a special promotion with carmakers (here are some examples: 1, 2, 3). However, banks aren’t stupid and do put a cap on the amount of mark up because it’s not sensible for a RM40,000 car to be marked up by 50% (or RM20,000) in accessories so the customer can “earn” from the deal.

Speaking of that, in some cases, SAs might even invoice an amount that far exceeds the price of the car, with the buyer getting to pocket the extra amount. If you’re looking to get “cashback” from buying a car, it’s a bad idea because the loan amount becomes larger, monthly instalments get bigger, and the insured sum – based on the marked-up loan – will be higher too. The latter means higher insurance premiums. This practice is not uncommon with recond and used car dealers as they define pricing independently.

As mentioned earlier, e-Invoicing will begin in August, but it will initially be mandatory for taxpayers engaged in commercial activities generating revenue over RM100 million annually. In January 2025, this requirement will extend to those with an annual turnover of between RM25 million and RM100 million. By July next year, all taxpayers engaged in commercial activities are required to do e-Invoicing, although anyone can choose to participate earlier.

The implementation of e-Invoicing will no doubt have an impact on car buying in Malaysia. What are your thoughts about this move? Have you ever taken a “full loan” before? Share your experience in the comments below.

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