Electronic Documentation - A New Paradigm with GST
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One constant for businesses in India is dealing with paper. When you make a business purchase you are issued a tax invoice, which you keep for documentation purposes.
When goods are transported there are copies of the invoice, which the supplier, the recipient and even the transporter have. All this paper is stored, tracked and in the case of an audit retrieved and presented.
It costs time and money to maintain this process; while GST has not eliminated the paper invoices it has made a significant change.
Death of Paper has Started
Before thinking about the GST, consider the tangible value of paper, which has stamp or notation form the government is king in India. Every shop you go to there will be a business license proudly posted somewhere or there will be tax certificates on paper stored in a cabinet. However, that isn’t always the case, in fact, the death of paper has already started. In West Bengal, the VAT certificates were “dematerialized” which is a fancy way of saying that they have become electronic. OTP is a constant in everyone’s life rather than using a piece of paper to gain entry to something. However, paper continues to build in desks, cabinets and pockets around India.
GST is an opportunity to move into electronic invoicing, which is the practice of issuing documents through electronic methods. Electronic invoicing introduces several benefits for businesses, such as digital invoice capture and the elimination of manual data entry, automatic invoice validation, automated matching, vendor self-service, improved cash management and less paper wasted.
While you can have electronic invoicing without a government mandate, a government mandate standardizes the data required for every invoice or document.
Groundwork Laid for Elimination of Paper Invoices
GST does mandate electronic invoices, it requires paper invoices continue to be generated. The ground work is being laid for the eventual elimination of the paper invoices. The first change is the new GST invoices do not have to look a certain way instead they need to have a minimum quantum of information to be a valid tax invoice. Second, the invoices can be digitally signed. Third, all the invoices with serial numbers and relevant pieces of data will go into the GSTN. It is important to note the government does not want a supplier’s invoices — it just wants the invoice numbers.
While the interaction between the supplier and the government is electronic, there is still a paper touch-point among the supplier, transporter and recipient. For example, when a customer calls you to put in an order you will take the order. Depending on the size of your business, all your inventory is logged into a computer and you generate an invoice for the order from a computer system. Most of these systems now will create an extract of the data for GST compliance. The extract goes to the government and you generate three pieces of paper – one for the recipient, one for the transporter if the goods are shipped and one for the recipient. The invoices have the same information each one has a different label:
Recipient – “ORIGINAL FOR RECIPIENT”
Transporter – “DUPLICATE FOR TRANSPORTER”
Supplier – “TRIPLCIATE FOR SUPPLIER”
Three documents exist with the same data. The next step is to take the data from the documents and instead of having it exist on paper make it electronic. While that sounds easy it requires that everyone agree on the same format so it can be sent and received automatically. This has occurred in many countries like Brazil, Mexico and Argentina where invoicing is electronic and the paper is a subset of the data. However, in those countries, the government mandates the nature, structure and composition of every invoice which generated. In other countries, governments mandate electronic invoicing for all purchasing so a standard is created across the country. It is likely that one day there will be an electronic invoice standard in India so creating the infrastructure for electronic invoices along with GST saves IT time and resources down the line.
PDF as Supplementary Document
One method for electronic invoicing is to have a PDF sent to an email which is then converted into a self-describing, hierarchical and parsed based on the data in the PDF.
Alternatively, the PDF can act as the supplementary document to a purely machine-readable document which business exchange. These electronic documents can be dispatched or sent from the supplier to all the parties in the transaction such as: receiver, transporter and a record to the government.
When each party receives the documents, it can run a pre-defined process to review, analyze, accept or reject the document based on pre-defined characteristics. For example, if the supplier and receiver have agreed upon a price and the price has increased the receiver can accept the invoice even though there has been a price increase with a tolerance. Each party should have systems which receive and process the documents to ensure that they are collected, captured and processed.
As business systems continue to evolve and become more aware of regulatory changes such as tax rate and rule changes; the automation can consider the effect of a rate change. For example, when an order is taken the rate on an item is 12% but when the invoice is issued the rate has gone from 12% to 18%. Therefore, now the total cost of the shipment has increased by 6%. If the receiving parties’ business system understands that increase is due to a tax rate change between the order and invoice, and not the change in the underlying goods then an approval could occur. A work process could begin to make any correcting entries.
Today everyone is still getting used to working with a single tax regime; the first returns are about to be filed. There is still not a clear way forward on how to file a return, claim an ITC and what will the impacts be on business. There have been a series of modifications and changes along the way and there is an untested and untried filing system in place. How do we from where we are today to where we want to be?
The first step is coming with the approval for the e-waybill. The e-waybill will be required to be created for every supply greater than INR 50,000 and the e-waybill numbers (EBN) will flow into the GSTN along with invoice numbers.
The e-waybill will give the ability for transporters to move goods across the country with time and distance based tokens. The transporters will have detailed manifests of cargo on their conveyances which can be inspected as needed. Soon the revenue authorities will have the data they want for transport and invoices through the invoice number and EBNs; the rest of the data will be submitted through the GST returns. Businesses should now solve the problem of exchanging the data among themselves.
The systems which businesses will put in place for transmission and acceptance of e-waybill can be used to prepare for electronic invoicing. The important piece with electronic invoicing is the document will need to be used to complete transaction but then be accessible for reporting and audit purposes later.
While the government could be years from mandating electronic invoicing; businesses can already begin to exchange data electronically and agree on formats. These formats must meet the minimum requirements for tax invoices but can be structured to ensure they can be processed automatically by a variety of different business systems.
The chance to move to an electronic invoicing system can save everyone time and money in a supply chain and is worth the investment.