How E-Invoicing help to Improve GST Compliance?
The Goods and Services Tax (GST) was introduced 5 years ago to address the antiquated challenges of double taxation, collecting taxes, & creating ease of doing business with a simplified tax structure. The world has witnessed how GST is helping to resolve most of these challenges. From an era of pre-authenticated excise invoices to real-time reporting under GST in the form of e-invoicing, a paradigm shift can be seen in the contour of document management. The catalyst in this journey has been the advent of technology. The aim of introducing GST was to digitize the complex tax structure & simplify tax compliance and achieve a boost in tax collections. Since the day of interception in July 2017, GST has seen remarkable developments.
Before moving forward to real-time reporting & e-invoicing, let us just take a step back and evaluate the challenges faced by the. The difference between the tax collected and the expected revenue was huge. Tax evasion, incorrect reporting of sales, and administrative errors could be the reasons for this huge difference. Earlier, it was unviable to manually chase the paper trails and identify the tax evasions, and optimize the practices. To curb such practices, e-invoicing was introduced on 1st October 2020. In addition, a central facility was organized to keep a check on the duplicated entries, to ensure that the same transaction is not reported multiple times. E-way bill was introduced to establish singular reporting of common data.
The year 2020 was difficult for the entire nation. At the onset of the pandemic, the year 2020 witnessed high adaptability of digitization in the business. Also in the same year, the government successfully implemented the electronic invoice system in India. With the advent of e-invoicing, inter-operability between two government portals—the IRP and GST portals—was tested. IRP is the Invoice Registration Portal designated for the validation and signing of e-invoices electronically. The GST Return Portal is used to report transactions & file GST returns. The successful implementation of the e-invoicing system in India has also revolutionized the exchange of invoice data between seller & buyer. There has been a significant increase in the GST collection in all these 5 years.
Recently, in June 2022, to provide taxpayers with a seamless e-invoicing system, the government appointed 5 more invoice registration portals.
Information Exchange among Tax Jurisdictions
Businesses operate in a multi-registration environment today. In such an environment, Digital Tax Administration (DTA) has assumed greater significance. As the quantum of information disclosed as part of the GST Return is high, tax administrators have leveraged a central system to ease the exchange of information between states. This is done for better uniformity of tax positions & improved administration of inter-state trade.
The IT infrastructure of GST networks provides a common platform for registration, return filing, and e-way bill. E-invoices are generated and authenticated through Invoice Registration Portals (IRPs). GSTN provides a common platform for all taxpayers and integrates the tax systems of the center and states.
Digital Tax Administration (DTA)
The government is continuously investing in building a framework where data triangulation is enabled to enhance systems & processes. For example, the GST & Income Tax databases are integrated to allow the comparison of transactions reported on either platform. Data recorded in Form 26AS is being compared with GSTR filings. Similarly, E-way Bill data is compared with FASTag data. Making Aadhaar mandatory will help achieve a single point of reference across all platforms. With tax reporting over a particular period of time, the sharing of data with the buyer is becoming more comprehensive in real time.
The new provisions are improving the overall quality of compliance. Like the provision of recovering from the buyer in case the seller has not deposited tax, or not reported the transaction, had made the entire process compliant in real-time. By building network visualization in the country, the government has built traceability for transactions across the country.
Taking a hint from the Peppol network, discussions are on to establish a peer-to-peer communication network to communicate the signed invoices to the counterparty. Such as:
- Customer seeks confirmation from the tax authority on the signed e-invoice.
- Where the communication is between different registered invoice service providers, decentralized clearance is available.
- Customers report an error or mismatch on the e-invoice by requesting a credit note.
- Customer records acceptance of an e-invoice before it becomes a valid tax invoice.
An e-invoice network will enable fast and more reliable communication of information. Elimination of manual steps will enhance automation in accounts processes that currently the taxpayer undertakes. Provision might be introduced to leverage optional information in the schema to transmit more comprehensive information to the counter-parties.
B2C Reporting Proposal
The government is also planning to bring out the ‘Mera bill meraadhikar scheme’ to encourage consumers to ask for genuine invoices from sellers. According to the proposal, B2C invoices will get reported on the portal to obtain a reference number in real time. The reference number may be used as a lottery for the buyer, who may be later rewarded. This proposal was made with the objective of enhancing end-user compliance.
How does the Taxation System impact Taxpayers?
To understand the impact, the taxation system is causing on the taxpayer, we need to understand the key aspects of an organization impacted by these developments:
- Tax Technology
- Data Management
- Dealing with an evolving DTA
- Knowledge required to deal with changing the Taxation System.
- Risk of financial & reputation losses in terms of penalty.
Three of the above-mentioned six impacts are related to technology and dealing with the tax administration.
Understanding the impact, the key is to set up appropriate systems and processes for:
• Exception management
• Engagement with regulators