India’s GST Council decided in late 2019 to introduce e-invoicing in a phased manner for B2B transactions from January 1 2020 before making the measure compulsory on April 1 for both B2B and B2C businesses. However, after companies complained that the timeframe left them with little time to be prepare, the GST Council announced on March 14 to delay the effective date until October 1.
“The law is moving very fast,” said Umang Dhingra, head of tax for India at GlaxoSmithKline Asia.As an example, he said that while the company was preparing for e-invoicing, suddenly the tax collection at source (TCS) rules were announced.
“My IT team was caught by surprise because this was never in the initial plan of action,” he said. Despite the conflicting deadlines and constant changes to the goods and services tax (GST) regime, Dhingra was told by his IT team to specify the priorities because, like most companies, each task requires an allocation of resources.
Furthermore, the Indian subsidiaries of foreign parent companies are struggling to explain the pace of change to their counterparts and senior managers in the headquarter jurisdiction.
“There has to be a certain way of doing things because most of the Western countries are used to getting things like e-invoicing [implemented] in a phased manner and with a lot of certainty,” said Dhingra, adding that many countries don’t see almost weekly changes to the conceptual framework (schema) and frequently asked questions (FAQs) document.
“All that confusion is something which is causing trouble,” said Dhingra, suggesting that once the schema is finalised, it should not be changed for at least three months to allow companies to adjust accordingly.
“There are too many conflicting priorities right now,” said one tax director at a multinational enterprise (MNE). They said that e-invoicing should be delayed until the implementation of single returns has stabilised.
“If one had the benefit of hindsight, you would say ‘implement e-invoicing first and then the single returns’ in that order,” said the MNE tax director. “So, it's literally reverse order in which things are getting implemented.”
The tax directors said e-invoicing is a big initiative. Noting the repeated deadline extensions given to the GSTR-9 forms and similar delays with others measures introduced during the first two years of the GST regime, many of them said they would not be surprised if e-invoicing was postponed by as much as a year to allow both the government and taxpayers to adequately prepare.
FAQs that fail to answer key questions
The key issues that companies are struggling with is that, firstly, the government has not run a comprehensive pilot programme to smooth out the recurring issues. As such, the frequently asked questions (FAQs) document on e-invoicing fails to answer questions such as when to use a QR code, or how B2C and B2B e-invoicing will work.
“The FAQs say that e-invoicing is only needed for B2B transactions, but a QR code is needed for B2C transactions. So, it's not clear whether e-invoicing is needed for B2C because we, as a consumer products company, do an entire B2C and B2B sale,” said the MNE tax director, questioning what the company needs to do in this case.
They added that the problems extend beyond the head office tax function too. Hindustan Unilever’s depos, which have dot matrix printers, are responsible for doing the B2C invoicing, meaning they cannot generate QR codes. This, therefore, requires an overhaul of the systems used by depos across the country.
“When you get down to things like that, we are now talking about ordering new printers and making sure that everybody in the depos knows how to generate those [QR codes],” the MNE tax director said.
More clarity on e-invoices still required
The FAQs have also so far not clarified simple questions on invoice generation and the frameworks being used.
Mohan Nusetti, vice president of indirect taxation at Lupin, said it is not very clear if there will be separate systems for B2C and B2B invoices. In addition, there is no option to generate bulk e-invoices.
“These are issues which I think even a medium-sized firm will struggle with to begin with,” said Nusetti, adding that although all companies will struggle with the changes, the effort involved will be much higher for medium-sized enterprises.
Furthermore, the e-invoice structure is creating numerous issues for some taxpayers because they have to change the templates they use and, in some cases, the way they do business.
“We found that some of our invoices run into 50 pages when you're doing a big sale to a big distributor,” said the MNE tax director, adding that there are too many restrictions in the e-invoicing on line items, referring to individual goods or services sold. “We realised that we may not be able to fit in those line items for a few invoices,” they said.
Cancelling or amending invoices under the e-invoicing system is also another pain point for many companies.
“Even for a small change, if you're selling 10 line items, and you want to make a small change or to withdraw that entire invoice, that's a huge issue, especially if there are a lot of items going under a single invoice,” said Nusetti.
These kind of issues could have been resolved through a pilot programme, according to the MNE tax director, although they did praise the webinars and consultation sessions the government has created to receive feedback from industry.
“We are looking forward to [e-invoicing] because it should organise things a lot more, but there are lots of teething issues – and I'm talking about very small issues that we're still dealing with,” the MNE tax director added.
Nusetti shares many of the tax director's concerns regarding the restrictions and obligations imposed on businesses with regards to the e-invoice template and the e-invoicing schema that was published at the beginning of 2020.
“There are about 126 fields, which are expected to be available in an invoice or an invoice’s back-end data, of which 46 are mandatory,” explained Nusetti.
Internally, when Lupin’s team ran through the list of 126 fields, they focused on the mandatory 46 sections to ensure their invoices were compliant.
“We realised there are close to 14 fields which were not there,” Nusetti said. “So, this requires substantial technological improvements and developments to ensure that this comes in because otherwise, if these validations do not happen, this could be a major business disrupter.”
Technology concerns
Another factor that all businesses need to consider is how they are going to electronically store their invoices because certain systems only keep invoices for 24 hours, requiring companies to implement a more reliable system.
As such, Nusetti suggested that once e-invoicing is in full effect, the government needs to have a period where they offer some leeway on assessments and non-compliance.
“I think that is very important, because people really don't have that much clarity on what is to be done,” Nusetti said. “If you give people time to adapt, then it's better.”
This is particularly important because it is often the government’s GST portal that suffers from technological glitches, making compliance and submissions a frustrating task. The system has been plagued with problems since it was implemented and often crashes on or around filing deadlines.
Taxpayers are still questioning whether the government is prepared from an IT side to handle e-invoicing because when the E-way bill was introduced, the system crashed for three months.
“You can't have the same thing happen with the e-invoicing, because invoicing is a much more integral part of GST accounting,” said Nusetti.
Nevertheless, Nusetti said e-invoicing is allowing the government and taxpayers to move towards a more cooperative compliance structure in line with other countries that have introduced similar regimes.
“It is good because tax professionals will not have to spend too much time in compliance but probably spend more time on strategic business decisions,” said Nusetti.
However, being able to the time spent on compliance is unlikely to happen in the near future. For now, taxpayers will need to focus on preparing for October’s implementation of e-invoicing and, at the same time, pre-empt other measures that may require the business to adapt quickly.
Comments provided for this article were given before the government announced a six-month delay to the e-invoicing regime. Taxpayers spoke at about the topic at ITR’s India Tax Forum.
