GST regime has ushered in a new phase of the digital indirect tax regime by proposing e-invoicing. This step was taken by the Union Finance Minister to bring forward the digital economy to control tax evasion. Recently, GSTN has drafted certain e-Invoicing standards in partnership with ICAI. These are based on globally accepted standards and are currently used in various European countries. With the help of this, the government is aiming to standardize the invoice formats to help in reading these e-invoices across different accounting software.
How e-Invoicing will work?
a) Under the proposed e-invoicing system the suppliers need to generate an Invoice Reference Number (IRN) for each of its invoices.
b) After the IRN is generated, the invoice details along with IRN needs to be notified online on a real-time basis.
c) Thereafter the GSTN portal will cross-verify the IRN and then will provide e-invoice to the supplier. This will also help in auto-populating the fields of GST Returns or e-way bill. These invoice details would also be available to the recipient or buyer which would help him to instantly verify the invoice details.
d) It shall be noted that only invoices with an IRN will be considered as valid tax invoices under this new proposed e-invoicing system.
Just like the e-Way Bill, this proposed e-invoicing system would also be implemented in a phased manner. Initially, it would apply to all the B2B invoices that exceed a particular threshold limit and may extend to B2C invoices soon.
Way Forward for Industry And Government
As an immediate action, the industry needs to examine the notification released by GSTN along with draft e-invoice schema/format.
The e-invoice schema/format offers the various kinds of information which would be populated on the e-invoice to be issued by the GSTN Portal. It also highlights which of this information would be mandatory/optional for businesses to provide.
It is critical that industry studies each of the business scenarios and maps them against e-invoicing requirements carefully to see whether the information required is currently available in their ERPs/ accounting software or would need certain system changes. However, any change in ERP or IT systems to fetch new information can be quite time-consuming, which has been the experience during GST implementation for companies across industries.
Further, any unique industry requirement from an invoice format perspective should also be assessed so that there is a field in the invoice issued by the agency to capture the same. Some finer aspects should also be checked such as the maximum number of characters allowed in a particular field or whether there is a restriction on the number of line items that can be captured as part of e-invoice.
In addition to this, there are quite a few business scenarios which are still ambiguous, such as:
Whether there will be two invoices, one generated from the ERP and second issued by the GSTN Portal online. If yes, which invoice would be the valid invoice for availing credit/ for the movement of the goods?
In case an invoice has been digitally signed by the GSTN Portal online, would there be a need to still sign the invoice by the seller? Will the need to have a digital signature from the seller be done away with?
Is it okay if instead of carrying the complete invoice, the seller only prints the IRN and ships the goods?
How would the cancellation of an invoice or amendment to an invoice be handled under the new e-invoice regime?
What would happen in case internet connectivity is down but the transaction has to be processed? Would an alternative be provided?
There are likely to be many more scenarios for which one doesn’t have clear answers today.
It would be prudent on the part of the industry to file timely representations before the government to list out such issues and business scenarios which require more clarity and have timely discussions with the government for possible solutions. As of now, GSTN has given time till Aug. 20, 2019, to provide feedback on the consultation paper.
Even though the government would provide a manual option to comply with e-invoicing, all large enterprises should evaluate/implement technology solutions to ensure timely compliance without business disruption.
From the government’s perspective, it should first consider extending the time for feedback, as the industry would need to evaluate it in greater detail.
The government must publish a detailed mechanism on how the e-invoicing system would work. This should also capture various scenarios and how the same would be dealt with in the proposed e-invoicing system.
From an IT system standpoint, all necessary steps should be undertaken to ensure that the information is available with the taxpayers on a real-time basis so that there is no business disruption. Starting with voluntary compliance helps eradicate all anomalies before it becomes a mandatory requirement. The government should indicate how taxpayers can continue with business as usual even if there is any challenge in the IT system.
The success of the e-invoicing system would depend on collaborative efforts between government, GSTN, and industry. Industry needs to be proactive in providing inputs to the government to avoid any big surprises at the time of implementation. The government would, on its part, need to be flexible/agile to incorporate all key industry requirements.
E-invoicing presents an opportunity for all stakeholders to make the economy digital and transparent with no need for a paper invoice in the future. The onus is on all stakeholders to make it a reality.