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E-invoices: The way ahead to plug in GST loopholes with invoice data integrity

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By Manjula Muthukrishnan

India recently completed three years under the Goods and Services Tax regime. The last three years have proven to be quite the learning curve for both taxpayers and the Government. When the Goods and Services Tax was first implemented, it created quite a stir and much confusion among taxpayers, especially because people took some time to understand the indirect tax mechanism. While the first year under GST mostly witnessed putting out fires around the tax framework, including launching a Goods and Services Tax portal, managing registrations, processing input tax credit claims etc.; the second and third year have seen the gradual stabilising of the GST system; so much so that the Centre started to introduce new policies and initiatives like e-way bills to improve India’s GST mechanism for both taxpayers and authorities.

The plans for the fourth year under the Goods and Services Tax were no different. India had several initiatives in the pipeline that would further improve processes under GST and iron out taxpayer grievances, but the lack of IT preparedness coupled with the nationwide lockdown due to coronavirus have led to the dropping of some efforts and rescheduling of others. While the new returns system under the Goods and Services Tax was supposed to be the biggest and most significant initiative this year, it has now been shelved. Instead of giving a new returns system, the Centre plans to improvement the capability to the existing returns system. That way taxpayers will not go through the pain of adapting to another whole new returns system. Cancellation of the initiative has turned the spotlight on another project that is due to be launched in October 2020. With less than 45 days for this initiative to be rolled out, taxpayers need to get themselves acquainted with the soon to be launched – e-invoicing system.

E-invoicing is a system under which the taxpayer can electronically authenticate their invoice with an invoice registration number and the same will be used as a point of reference while carrying out a number of compliance tasks under the GST framework, including the filing of GST returns, generation of e-way bills and much more. The new invoice system is being introduced for several reasons. For starters, compiling and matching each invoice while filing returns is an extremely cumbersome and rather time-consuming process. Most companies who hire highly qualified GST experts and professionals have often found that a large chunk of time and effort is wasted on manual compilation and processing of invoices.

Another fundamental reason for introducing e-invoicing under the Goods and Services Tax is to curb the unethical and illegal activity of fraudulent invoicing. Several taxpayers have filed fraudulent invoices in a bid to collect large amounts of input tax credit costing the Government crores in losses. It is essential for taxpayers as well as the Government to maintain transparency and information integrity at all checkpoints of the tax return filing process. This is exactly where e-invoicing comes into the picture.

E-invoicing not only significantly reduces the manual process of invoice matching, but it also helps maintain transparency between the taxpayers and the Government, the invoice registration number allows ease of access for data validation and authentication, it keeps taxpayers ethical, and it saves a lot of time that would otherwise be wasted on data reconciliation. This initiative was first introduced in January this year on a voluntary basis so that taxpayers could familiarise themselves with the system, but now that it is all set to become mandatory from October 2020, companies need to align themselves with the new system. This means identifying various touchpoints in the business systems which would be impacted, evaluating their technology systems like ERPs, POS, accounting solutions, e-commerce systems, and, if required, upgrading them to be GST compliant. Moreover, adopting an e-invoicing solution which can seamlessly integrate their business systems, meet their business as well as budget needs, validates invoice data and is reliable even during peak business hours.

The Goods and Services tax is in a phase of continuous innovation, meaning taxpayers will have to keep up with the changes in processes that will eventually be beneficial for smoother, error-free, and faster tax management. But for now, with less than two months to go, taxpayers must acquaint themselves with the process and get ready with their e-invoicing system.

(The author is Managing Director of Avalara Technologies)

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