E-invoicing - a major step towards Digital Tax Administration

Digital transformation is no longer an option in the globally connected digital environment. Tax authorities the world over are increasingly moving towards e-administration – partly driven by the need to improve taxpayer delivery services and partly to manage the growing tax compliance risks. Another impetus is the increasing pressure to cut administrative costs while finding ways to enhance revenue collection. It is in this context that e-invoicing has gained ascendancy. Indeed, e-invoicing is considered an important pillar of the digital architecture of tax administration from both the taxpayers’ and the government’s perspective.

From the taxpayers’ viewpoint, the transition to a digitised system of e-invoicing will help in two ways. First, it will eliminate transcription and other human errors in the GST reporting process. Second, ‘smart portals’ of the GST/VAT administrations can reduce the compliance burden in the GST reporting process by eliminating redundancy, ensuring hassle-free input credit availability and enabling pre-filled forms for the convenience of taxpayers. With the data available, tax administrations can provide pre-populated tax refund forms or even better, grant input tax credit refunds suo moto, based on details in the pre-filled GST returns. When it comes to the rigours of a tax audit, e-invoicing can minimise documentation in the GST audit process, thanks to the availability of real-time data. Overall, e-invoicing is a great step towards improving ease of doing business for taxpayers because of three potential benefits: pre-filled GST returns, quicker GST refunds and less intense GST audits. Internally too, with the introduction of e-invoicing, companies can achieve huge efficiency gains in their entire ‘procure-to-pay’ cycle with the help of digital flow in tax and accounting systems.

For tax administration, e-invoicing gives greater visibility into transactions related to goods and services on a real-time basis at the national and regional levels. In fact, e-invoicing has the potential to help the tax administration in many ways. One, given the rising expectations of taxpayers, the vast amount of data generated by e-invoicing can be leveraged for better delivery of ICT-based personalised taxpayer services. Two, with e-invoicing, real-time data analytics has enabled timely detection and deterrence of tax frauds. Many Latin American tax administrations have reportedly witnessed huge gains in VAT collections following the introduction of e-invoicing. And finally, e-invoicing’ has provided critical inputs for impact analysis of potential legal or tariff changes in GST and data-driven tax policy formulation for the government. Nudging of taxpayer behaviour based on real-time e-invoicing data can help tax administrations pro-actively adopt a soft-touch approach rather than imposing penalties for non-compliance.

E invoicing for GST is thus a positive step and a win-win proposition for taxpayers as well as the tax administration.