BackOpinion | How GST e-invoicing will reduce the government's compliance burden
The move is expected to push the large fragmented MSME sector to adopt transformative technology, which in turn will drive the economy faster. It could also make companies malleable and adaptable to newer ways of doing business
PremiumE-invoicing is an opportunity for digital transformation, one of the tenets of the government’s 'Digital India' campaign. The new system of government-verified invoice brings with it numerous benefits, for both the government and taxpayers and helps amplify the ease of doing business.
In October, India joined the bandwagon of countries adopting e-invoicing. It was also a part of compliance requirement under the GST legislation for B2B supplies made by taxpayers with a turnover exceeding ₹500 crore. India has adopted something similar to what is globally referred to as the ‘clearance model’ where an invoice is required to be reported and cleared by the government on a designated portal before being shared with the buyer. This is in line with the global trend where countries are trying to move towards more real-time reporting and analysis, rather than post-facto audit-based approach of monitoring.
With the rollout of the system for large taxpayers a success, the government has now extended the applicability of e-invoicing to companies with an annual turnover of ₹100 crore or more, effective 1 January, 2021, and may lower the threshold further. This move is expected to push the large fragmented MSME sector to adopt transformative technology, which in turn will drive the economy faster. Interestingly, this may also make companies malleable and adaptable to technology and to newer ways of doing business. It is these latent benefits that are the hallmark of the new system and of true value to the economy.
The swiftness with which the government is gearing up systems to manage B2B invoices raised by more than 1 crore of taxpayers signifies the numerous benefits that the government foresees due to implementation of e-invoicing for the economy as well as the government.
Reduced disputes on input tax credit claimed by buyer
The new process brings with it a colossal amount of real-time data for analytics by the government to curb the menace of fake invoice, resulting in genuine input tax credit (ITC) claims by taxpayers. The reduction in cases where dubious and fraudulent ITC are being claimed will also help plug revenue leak.
The concept of using a standard file which contain the relevant particulars of an invoice and authentication by the government would also enable the buyer to verify the genuineness of its supplier through automated systems. The buyer’s insistence will compel suppliers to mandatorily issue e-invoice and ensure that the tax for the same is deposited with the government.
Improved reconciliation
Integration of e-invoicing system with GST returns and e-way portal automatically reduces the need for reporting the same again and eliminates the human errors. While facility of generation of e-way bill form e-invoice data was made available from day one, the auto population of GST Return-1 has started from this month. The pre e-invoicing era involved multiple manual reconciliations between GSTR 1, GSTR 3B and the e-way bill. With the implementation of e-invoice, the triad of systems are linked such that details furnished on the Invoice Registration Portal gets auto populated in GSTR 1, and the e-way bill portal based on which the liability in GSTR 3B of the supplier and his ITC from GSTR2B will be automatically computed.
The linkage of customs portal (ICEGATE) for auto upload of import IGST in GSTR 2A/2B and consequently GSTR 3B for set-off against domestic GST also adds to cutting compliance burden and to boost ease of doing business. The integration of the three systems makes it easier for taxpayers to take immediate corrective measures with added benefit to the government that their audits be targeted, be accurate and precise.
Real-time checking, monitoring
The mandatory affixation of QR code containing the Invoice Reference Number (IRN) and eight other parameters on invoices has enabled the buyer to check the validity of an invoice issued through a QR code verification app released by the government for Android and iOS platforms, which are also being used by department officials to check the validity of the invoice, especially when goods are in transit.
Under the Indian taxation system, businesses have often complained that indirect compliances are a heavily manual driven process. E-invoicing will help automate the processes and add transparency, speed and accuracy. This new process of authenticating an electronically generated invoice through the GST reporting platform is a major reform and will take India closer to becoming a digital economy, help control tax evasion and bring in stronger audit trails.
It is expected that India will have an experience similar to countries such as Brazil, Chile, among others, that have reported a drastic decline in frauds and tax evasion upon adopting the e-invoicing system.
(Mahesh Jaising is partner & leader, indirect tax at Deloitte India and Prakash Kumar is senior advisor, Deloitte India.)
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