E-Invoicing: Embracing a global trend

E-invoicing has been in the news recently as the Government of India (GoI) has proposed to make it mandatory for businesses with an annual turnover of INR 100 crore to switch to e-invoices from 1 October 2020. The concept of e-invoicing may be new to Indian taxpayers, but it has been adopted by about 70 countries over the past few decades. Latin American and European countries have been the pioneers in the adoption of e-invoicing. Latin American businesses had adopted business-to-business (B2B) e-invoicing for commercial purposes well before such a move was mandated by the tax administrations in their countries. In Europe, until recently, e-invoicing was mainly geared towards transactions in the public procurement supply chain. "It is expected that by 2025, e-invoicing would be the predominant mode of global exchange of commercial documents such as invoices and debit/credit notes.

The term ‘e-invoice’ is generic and has many connotations. An e-invoice may refer to any digitised copy of a physical invoice/bill, which may or may not be legally or commercially acceptable as a valid document. On the other hand, it could also be defined as a digitally authenticated tax receipt which is generated from the portal of a country’s tax authority.

In most countries, an e-invoice is generated by the business entity in its own system and later transmitted to the portal of the concerned tax authority for authentication and digital signature to become a legally valid tax document. This is precisely what is being proposed in India’s GST regime. E-invoicing is accompanied by a mandatory standard format which will enable interoperability and seamless flow of invoice data between various systems. This barrier-free and machine-readable aspect of an e-invoice holds great promise for both the taxpayer and the tax administration. Several Latin American countries like Brazil, Mexico and Columbia have witnessed significant gains in VAT collections after the introduction of e-invoicing. The trend of tax administrations making e-invoicing mandatory for all businesses has gained momentum in the last few years. In India, the GoI has extended the target date for implementation of e-invoicing to 1 October 2020 from the earlier announced date of 1 April 2020. This would give trade and industry bodies adequate time for carrying out the preparatory work. This would also ensure that the GSTN Portal is ready for e-invoicing.

Digital disruption in the wake of e-invoicing also provides great opportunities for businesses to revamp their tax functions. It is important to act fast to ensure tax compliance and at the same time, adopt the right solution for integrating e-invoicing with other processes in the procure-to-pay business cycle. The choice of tax technology solutions for e-invoicing can make or mar the tax function of businesses in the future. It is imperative to opt for a solution that provides a comprehensive end-to-end framework. Such a framework would not only help taxpayers smoothly navigate the e-invoicing processes but also ensure smarter tax compliance by seamlessly integrating it with other tax and accounting functions.