gst: Growing the Network: How Electronic Invoicing Boosts GST Compliance

The government’s decision to introduce e-invoicing as a mandatory part of the GST landscape has improved compliance and boosted GST collection while transforming the transactional landscape of India’s commercial economy into a digital and transparent system. .

This was not the case when, with the introduction of the GST in July 2017, the government’s hopes for a nationwide uniform law to strengthen compliance and improve tax collection were repeatedly denied. . Revenue collection in the first three years of the GST fell far short of expectations with widespread non-compliance and non-filing of GST returns by a significant number of taxpayers. GST non-compliance was on the rise and more and more cases of fraudulent invoices to qualify for the input tax credit (

), came to light.

There was an urgent need to correct the GST law and the government seized this opportunity to introduce electronic invoicing in a phased manner. Simply put, electronic invoicing ensures that a commercial invoice is identified by a unique identification number (called an invoice reference number) which is generated by the GSTN invoice registration portal. This invoice registration number must be encrypted in a Quick Response Code (QR) on the invoice. The QR code contains, in addition to the IRN, the GST registration numbers of the supplier and recipient, the date of generation of the invoice, the invoice number and the value of the invoice. This unique matrix barcode is machine readable and can easily verify the invoice even using a mobile phone. It allows interoperability because electronic invoices are generated in a standardized format and can therefore be read by different software.

How does electronic invoicing ensure compliance? Having an electronic invoice validated by the GSTN ensures that the GSTN system captures at the stage of generation of the incipient invoice, all procurement transactions on which an input credit can be used by a buyer of goods and Services. In fact, the GSTN goes one step further and automatically fills out sales and purchase returns from the GST-registered seller and buyer. Thus, in real time, the GSTN system captures all B2B transactions on which GST is applicable – any B2B invoice that does not have an IRN cannot be used to invoke ITC and thus drastically truncates practices. fraudulent for corporate misuse of ITC.

It is not surprising that since November 2020 GST collections have increased and crossed the threshold of Rs 1 lakh crore – electronic invoicing was introduced in October 2020 for companies with turnover above Rs 500 crore and extended to those whose turnover is greater than Rs 100 crore of January 2021; and electronic invoicing is now mandatory for companies with turnover above Rs 50 crore, from April 1, 2021.

This phased approach has enabled GSTN and businesses to prepare for this major transformation in the concept of GST compliance. Electronic invoicing is already working successfully in many countries around the world, and with this measure India will also follow the contemporary global standard of invoice format used in business transactions. In addition, it is expected that by the end of this year, electronic invoicing will be extended and made mandatory for all GST registered businesses except B2C and GST exempt transactions. Financial institutions, freight and passenger transport and SEZ units are also outside the scope of electronic invoicing.

This transmission, reception and processing of digital transactional documents by means of an electronic invoice between suppliers and buyers has several advantages over the traditional physical invoicing system. Generating electronic invoices reduces data entry errors, improves account reconciliation, provides accurate ITC claims and shortened payment cycles, and improves customer relationships. Electronic invoicing removes the benefit of spontaneous physical invoicing, especially for small businesses, and also requires additional expense in automation.

For the government, electronic invoicing enables real-time invoice tracking and automated electronic tracking, reducing input tax credit mismatches, leading to a unified and automated GST reporting system. Supported by increased coverage and the success of electronic invoicing, the Minister of Finance acknowledged having agreed to eliminate the requirement for electronic invoices (road license or transport document) in the near future. More importantly, electronic invoicing has, to a large extent, killed two birds with one stone – while reducing the burden of invoice matching activities and thus using the right ITC in a timely manner, it has simultaneously guaranteed that the government does not suffer losses account of the unscrupulous practices of false and fraudulent tax invoices (it is no secret that the European Union loses around 30 billion euros per year due to the misuse of ITC). In addition, the automated population of electronic invoices in GST returns from sellers and buyers has significantly reduced the burden of GST compliance for commerce. However, its real success would lie in the fact that the government will ensure that there are no technology glitches in the e-invoicing regime and that it continues to spend to improve its technological advancements in order to transform compliance. the GST into a system of self-regulation.

Highlighting the government’s efforts to promote a digital economy, e-invoicing provides for the keeping of records in a cloud environment and thus supports a clean environment, as printed invoices can literally be deleted. Legal changes can be expected soon on this front.

(The writer is Senior Director at Deloitte India)