India to become latest in Asia’s invoicing system overhaul

India to become latest in Asia’s invoicing system overhaul

Aimed at tackling evasion, India’s new e-invoicing system is the latest in a line of similar programmes across Asia

India to become latest in Asia’s invoicing system overhaul

If effective, India’s new invoice clearance regulation – expected to take effect from April – has had a ripple effect across Asia where a host of countries are looking to similar programmes.

“India is proposing a local adaptation of these frameworks and reforms that we’ve seen elsewhere. In doing so, India will be the pioneer of the Asian region, meaning the reform have spill over effects on other countries in Asia,” explains Filippa Jörnstedt, Senior Regulatory Counsel at Sovos.

Countries including the Philippines and Thailand are already implementing similar systems.

The Philippine Digital Transformation Strategy 2022 was announced last year, outlining the country’s path to digitalisation as part of a plan to target tax fraud. In Korea, the Bureau of Internal Revenue announced the e-invoicing system to be implemented late 2022.

In Thailand, an agreement has been signed to develop an e-invoicing system.

Following consultation with industry bodies and the Institute of Chartered Accountants of India (ICAI), the Goods and Services Tax (GST) Council decided to go ahead with the implementation of e-invoice a the 37th Council meeting, held in September 2019.

The Indian government has initiated its first approach towards greater simplification of its tax structure to tighten the GST GAP. The new system has been enforced since January 2020, on a voluntary basis, but will come mandatory starting on April 1, 2020.

Earlier this year, the International Monetary Fund (IMF) announced that India’s goods and services (GST) tax collection was below expectations. The Fifteenth Finance Commission has also estimated a 5trn rupee annual loss due to tax evasion – or 40 percent of the GST collection target.

“India has a very significant GST tax GAP, so change in this reform and the gradual introduction of these kinds of rules serve the purpose of closing that GST GAP or tax leakage. They want to narrow what I think today is a big deal – it is 40 percent of GST that India could be collecting. They want to close that leakage,” says Jörnstedt.

Providing greater visibility into business transactions, e-invoicing could curb tax evasion by plugging the revenue leakage of India – a system also beneficial for businesses looking to cut costs, according to Jörnstedt

“This is great for the tax authority, because they have more evidence to lower tax fraud, but it’s an operational change for businesses. It’s new rules that they need to find solutions to comply with, but it’s also carries a lot of potential for businesses,” she says.

“India is a very paper-based society today, especially when it comes to invoicing. Once companies need to comply with these kinds of requirements, it lowers the threshold in automating other parts of your finance processes. It’s a great cost cutting potential that companies have ahead of themselves.”

The European Commission introduced standard for e-invoicing in 2014 in response to tax collection issues. Member states had until the April 18, 2019 to comply with the new rule.

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