How e-invoicing and technology are improving GST compliance

As we contemplate real-time reporting and e-invoicing, let us take a step back and evaluate the challenge faced by tax administrators — the difference between the expected GST revenue and the actual amount collected.

Among the factors that could cause such a gap are possible tax evasion, incorrect reporting, and administrative errors. Several measures like notice on account of variance/difference in data reported in returns and e-waybill related checks during transportation etc., have been adopted to plug holes. As it was unviable to effectively detect and eliminate tax evasion and optimization practices by chasing paper trails, e-invoices were introduced on 01 October 2020. In addition, a central de-duplication facility has been operationalized to ensure that the same transaction is not reported multiple times. A connection with e-way bill system has been established for singular reporting of common data.

Year 2020 witnessed not only high adaptability in businesses at the onset of a pandemic but also in the way the government and enterprises successfully implemented the electronic invoice regime in India. With the advent of e-invoicing, inter-operability between two government portals — Invoice registration portal (IRP), which is designated for validation and signing of e-invoices, and GST return portal, for transaction reporting and return filing — was tested.

The successful combination of e-invoicing with real-time reporting has also rationalized the exchange of invoice data between business partners.

With the phased roll-out of e-invoice (applicable as of 01 April 2022 for businesses with an annual aggregate turnover threshold of US$27,000 or INR 200 million), there has been a significant increase in real-time reporting and tracking of GST collections.

Recently, in June 2022, the government had appointed five other invoice registration portal (IRPs) to provide taxpayers a seamless e-invoice generation experience.

Information exchange among tax jurisdictions

Given the multi-registration environment in which businesses operate today, digital tax administration (DTA) has assumed higher significance. As the quantum of information disclosed as part of GST returns is high, tax administrators are leveraging a centralized system to facilitate information exchange between states for better administration of inter-state trade and uniformity of tax positions.

The revolutionary goods and services tax network (GSTN), GST’s IT infrastructure, provides a common platform for registration, return filing and e-payment, while e-invoices are generated through authorized invoice registration portals (IRPs). GSTN provides a shared IT platform to all GST stakeholders and integrates the tax administration systems of the center and states.

India’s rapid strides in DTA

The government is continuously investing in enhancing systems and processes and is building a framework where data triangulation is enabled. For example, the income tax and GST databases are now integrated, which allows comparison of transactions reported on either platform. Data recorded in Form 26AS is being compared with GSTR1 filings. E-way bill filings are triangulated with FASTag data. Making aadhaar authentication mandatory will help provide a single point of reference across multiple databases of the government. With input tax credit in particular, over a period, data sharing with the buyer is becoming real-time and comprehensive. 

Provisions regarding the ability to recover from the buyer in case the vendor has not deposited taxes, or the transaction is not reported by the vendor, have created the need for the entire chain to be compliant on a near real-time basis. This is improving the overall quality of compliance. Expansion of e-invoice requirements is expected to continue. On the analytics side, the government has built traceability of transactions through several supply chains by building network visualization across the country. 

E-invoice communication

Taking a cue from other jurisdictions and the Peppol (Pan-European Public Procurement On-Line) network, discussions are on to establishing a peer-to-peer communication network, whereby the signed e-invoices can be communicated to the counterparty. Some variants being considered are:

1. Customer obtains confirmation from tax authority on the signed e-invoice.
2. Decentralized clearance is available where the communication is between different registered invoice service providers.
3. Customer identifies and reports any errors or data mismatch on the e-invoice by requesting for a credit note to rectify errors.
4. Customer records acceptance of an e-invoice before it becomes a valid tax invoice.

An e-invoice network will enable faster and more comprehensive communication of transaction level information. It will usher automation in accounts payable processes, eliminating several manual steps that taxpayers currently undertake. Trade may also leverage optional information in the schema to transmit more comprehensive information to counterparties.

Transformation of B2C reporting

The government is working to bring out the invoice incentivization or the Mera Bill Mera Adhikar scheme to incentivize citizens and consumers to ask for genuine invoices from sellers (especially those who cater predominantly to the B2C market). According to the proposal, B2C invoices (if the buyer chooses) will get reported on the designated government portal to obtain a reference number on a real-time basis. The reference number may then operate like a lottery number for the buyer where the winner is rewarded based on a raffle at the end of a period. The objective is to improve the last-mile compliance quality.

Taxpayer actionables

What do the various developments in GST mean for the taxpayer? To understand this better, we need to understand the key aspects of an organization that are impacted by some of these developments.

1. Tax technology
2. Data management
3. Dealing with evolving DTA
4. Talent requirement to deal with the change in conditions.
5. Aligning the evolving business and tax and technology landscapes.
6. Reputational risk and risk of financial loss in terms of interest and penalty in case of process failures. 

Three of the above-mentioned six parameters are related to technology, big data, and dealing with the tax administration.

The key, therefore, will be to set up appropriate systems and processes for record keeping, reconciliations, exception management, analytics and engagement with regulators