The GST Council has announced the deferment of mandatory e-invoicing in India till the time a robust and integrated system is not built
By Rajat Mohan
Senior Partner, AMRG & Associates
In the late 1980s, less than 1 per cent of the world’s technologically stored information was in digital format. It increased to 94 per cent in 2007 and further to nearly 99 per cent by 2014.
In this era of digital revolution business processes are under total revolution. Back in July 2017, it was estimated that Indian Goods and Services Tax (GST) network would hit about 3.5 billion invoices every month, amounting to 42 billion annual invoices. Now, one can estimate the burden on tax authorities to check and reconcile 42 billion invoices and ensure payment of taxes and legal claim of tax credit.
Looking at the Indian scenario and global solutions available, GST Council constituted a Committee of Officers on Generation of Electronic Invoice (E-invoice) through GST Portal which is loaded with the task of examining global electronic tax invoice system, suggest threshold limits and suggest integration of E-invoice numbering with different accounting systems. The committee headed by special secretary, plans to study various countries such as South Korea and Latin America.
E-invoicing is a revolutionary concept in global business scenario, which is developing at a debauched pace. Various versions of E-invoicing could be contemplated, however, the fully automated comprehensive version requires a supplier to generate every invoice on the government portal, which empowers every recipient to cross-check and validate every invoice on real-time basis from government servers. If this version of E-invoicing is implemented it will change the way businesses are conducted in India and the way indirect tax administration has been managed for decades. One of the reports of 2013 accepted that there are at least 56 countries that have adopted or are seriously considering E-invoicing mandates.
History of E-invoicing dates back to initial years of this millennium. Since then many countries are intensively working towards its implementation. Over the past decade, 25+ countries have begun building a network for standard E-invoice.
The EU (European Union) is moving towards to establish e-invoicing a general custom by 2020. The United States has mandated this and it has cited an estimated 50 per cent reduction in related costs making annual savings amounting to USD 450 million. Even in 2011, Deutsche Bank in its one of the report projected that E-invoicing can save upto €50-70 million on government processing costs. In Latin America, some of the governments notably Brazil and Mexico, have made electronic invoicing as the only acceptable way for all substantial trade and mandates it to pass through a government framework. Denmark’s pioneering 2005 legislation allows vendors to submit invoices online at no charge, with no special software purchase requirement.
Internationally best practices, which evolved, were out of Denmark’s mandate. It intends to substitute voluntary commercial adoption of electronic invoicing for B2B transactions. The need for E-invoicing is motivated because of efficiency, austerity and revenue capture. Prevailing opinion is that a unified market requires a systems similar to an Automated Teller Machine network to facilitate less weighty commerce.
Brazil is in process of implementing E-invoicing wherein a document is sent and stored electronically with the purpose of documenting commercial transaction between buyers and sellers. In this process sender generates a digitally signed extensible markup language document and ends the same to tax authorities. The tax authority makes an initial evaluation of the electronic file and sends an authorization of use, without which it is not possible to transport goods.
India may slice the market into various parts based on need and urgency of implementation. This slicing and dicing may be based on the nature of transactions (B2B, B2C or B2G), threshold limit on invoicing, nature of supplies, that is, Goods or services orsectoral implementation. Various countries have taken various routes, however mandating the E-invoicing for B2B transactions shall be on the top of the Indian list. Thereby all invoices for B2B transactions shall be generated from GSTN portal mandatorily by every registered person, which would tame the problem of fake invoices. India lost over INR 48,000 crore to indirect tax evasion during the April-December, 2018 and hopefully, with such anti-evasion methods, we might be able to bring lower the high levels of tax evasion.
Presence Across Nation India implementation of E-invoicing would need a robust and integrated system. Government has time and again accepted failure of its current digital network leading to inconvenience for taxpayers. An Indian trade body survey showed that, 59 per cent people are not satisfied with the Goods and Service Tax Network (GSTN) portal capabilities, 96 per cent wanted improvements in GSTN portal. Problems like delayed reflection of data, late credit of payment in tax registers, absence of effective mechanism to resolve issues and inability to make corrections in data are few of the regular issues in GSTN. Now with E-invoicing servers would under much higher pressure and would be prone to frequent crashes. Government will have to drastically upgrade and improve the GSTN portal before this process is even conceptualized, otherwise like tax credit matching scheme this scheme would also remain a mere pen and paper scheme.
Primary benefits of mandatory e-invoicing would accrue to the government in the form of controlled tax evasion, real-time sharing of data nearest to the point of sale, enhanced invoice reliability, enabling a better exchange/sharing of information and availability of reliable information reducing costs for control of tax evasion.
Businesses would have teething issues in the beginning, however they would also be on the receiving end of paybacks from this futuristic change which may include reduced government intervention, annulment of E-way bills, withdrawal of tax credit mechanism requirement, higher customer satisfaction, lowering of commercial disputes as the authenticate data is always available to trustworthy government servers.
E-invoicing would also entail benefits for Society in the form of reduction of paper consumption, encouraging e-commerce, use of newer technologies, standardization of business processes, reduced commercial litigation sue to availability of reliable evidence, lower tax evasion, higher collections, and bonafide business relations.