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This new digital transformation of doing business, one of the tenets of the Government’s 'Digital India' campaign, has come with its own set of advantages and challenges. Let’s discuss in detail, what has been the impact of e-invoicing on the Indian SMEs.
For the uninitiated, e-invoicing was made mandatory for taxpayers whose aggregate turnover during previous financial years exceeds Rs 500 Crores and Rs 100 Crores w.e.f. 01st October 2020 with some relaxations and 1st January 2021 respectively.
Currently (w.e.f. 1st April 2021), the threshold limit stands at Rs 50 Crores and is applicable for Business to Business (B2B) including Business to Government (B2G), credit notes, debit notes and export supplies only.
Therefore, e-invoicing is not applicable on Business to Consumer (B2C) invoices. However, taxpayers having turnover exceeding Rs 500 crores should have self-generated dynamic QR on B2C invoices w.e.f. 1st July 2021. There is no notification or announcement in relation to self–generated dynamic QR code on B2C invoices for turnover exceeding Rs 50 crores and up to 500 crores.
The Government has waived a penalty for non-compliance between the period from December 1, 2020 to June 30, 2021, subject to the condition that the said person complies from July 1, 2021.
E-invoicing is a brand-new tax reform that is being enforced at a point of time when numerous issues under GST are looming large in the minds of businesses. Therefore, it is inevitable that they would face a plethora of hiccups while implementing the e-invoicing system.
Some of the challenges are the implementation of e-invoicing to increase compliance burden, especially for SME’s who would perform this task manually, as they need to train employees to operate the new portal. Secondly, more time would be spent on reconciliations in addition to current time spent and businesses need to ensure that e-invoices generated are reconciled with books of accounts, GSTR-1 filed, invoice details filled in e-way bills and actual IRN generated. Further, e-invoices data will only be saved on the invoice generation portal only for 24 hours. Therefore, an alternative mechanism needs to be put in place for archiving data. Moreover, due to frequent changes in invoice schema by the government, taxpayers are required to continuously alter their e-invoicing system.
The current e-invoicing infrastructure in place has various technological flaws which are a roadblock in smooth implementation of the e-invoicing system.
Major issues such as generated e-invoices are not auto populating to respective tables under GSTR-1 on the GST portal. Further, there is no option to amend an e-invoice generated, to rectify any clerical errors. Moreover, there is unexpected GST server down time that has hampered generation of e-invoices.
As it is said that till the time any reform does not reach the core of the society, it stands unaccomplished. E-invoicing process is a huge step in the traditional way of carrying out the business operations by small players.
Though there has been a significant improvement in internet coverage in India, many rural parts of the country still struggle to access internet and consistent power supply. For example, SME with a factory located in a remote area with inconsistent data coverage would still feel pestered to go through the e-invoicing process and comply with tax norms.
Similarly, the integration of ERPs with the IRP and the required technological enhancements may pose initial hiccups for small market players to live up to the expectations of this reform.
Since the whole process of electronic invoicing works on the concept of real-time data reporting, the hassles of operational daily invoicing in the initial phase may require a set of expertise and knowledge requirements which the SME sector should provide for.
The manual bill books, traditional accounting software, existing invoicing systems in place – These are all which may need to undergo an overhaul for small-scale sectors.
While e-invoicing aims to smoothen up key business functions like inventory management, supplier management, receivable and payables processing, etc., it aims to eliminate the requirement of any manual intervention in the chain of invoice processing.
Consequently, this would pave a way for supplementary transparency throughout the process.
The need for a well-developed IT support system, manpower with required knowledge and handling day-to-day hassles of billing through e-invoicing are the areas where the SMEs may have to ponder their time and cost to combat the potential issues of this technology-driven way of doing business.
Pre-e-invoicing era, there were multiple formats of invoices being used and there was no standardized system in place. E-invoicing helps to ensure that there is uniform invoice template is used and the numbers which shall be reported by small sellers would remain in the government domain, which would further help such sellers to get the policy benefits as and when they are drafted and implemented.
Transparency in reporting of the transactions of SME sectors to the Government will enable authorities to keep a tab on knowing the real picture from an economic standpoint.
As we know, there is a direct linkage between the strength of inhouse IT support set-up and the efficiency of tax compliances for large players. This new digital invoicing reform expects taxpayers to work on a robust IT network and well-defined process systems.
This move is expected to push the large fragmented SME sector to adopt transformative technology, which in turn, will drive the economy faster. This may also be perceived as a step to make companies malleable and adaptable to technology and to newer ways of doing business.
The integration of the e-invoicing system with GST returns and e-way portal reduces the need for duplicate reporting, thereby eliminating human errors.
With the implementation of digital invoicing system, the GST compliance process will oust the need for manual reconciliations between GSTR-1, GSTR-3B and e-way bills, thereby targeting a holistic view to take corrective measures by assessees wherever necessary.
This would also further add to the benefits to the Government in the regular audit process, assessment proceedings and to lessen time and effort involvement in GST audits and related scrutinies.
In nutshell, despite the teething issues faced by businesses in the initial phase of implementation, such as integration or upgradation of their existing IT systems, revamping invoicing practices and the need for imparting training to their personnel, they would be the ones who would be at the receiving ends of the paybacks of this massive reform.
This digital step also entails benefits of reduced Government intervention, reliability from financial stakeholders, lowering of commercial disputes as the authenticated data is always available in trustworthy Government servers and standardization of business processes throughout the country.
Government should prepare a robust IT backend system that is able to handle the increasing load of e-invoices generated by taxpayers.
Also, user-friendly features should be incorporated on the invoice generation portal which supports SMEs. Furthermore, seamless integration with e-way bill and GST portal is requisite to curb tax leakages and to track malafide transactions.
Entering into the era of digital metamorphosis and seeing the significance of technology in the COVID-19 crisis, it becomes imperative to welcome this change by the Government aiming to add transparency and control tax evasion, thus taking India closer to becoming a digital economy.
The article was published on CNBCTV18.