The digital revolution has allowed tax administrations in Southeast Asia to reimagine the future of tax collection. As compliance by design becomes the focus, e-invoicing has emerged as an essential part of the tax administration toolkit.
Eliminating the need for paper invoices, e-invoicing allows businesses to create and store machine-readable, digitised versions of invoices for billing and payment. Through a designated e-invoicing portal, invoices can be sent electronically to trading partners using a structured data format, such as Extensible Markup Language, JavaScript Object Notation, Universal Business Language, electronic data interchange, or Pan-European Public Procurement Online.
Across Southeast Asia, a growing number of tax administrations are mandating the adoption of e-invoicing as they progress to the next phase of their digital transformation journey.
While Indonesia and Vietnam have already implemented e-invoicing, the Philippines is trialling the introduction of e-invoicing with its 100 largest taxpayers in a pilot phase in 2023 before implementing the same for other large taxpayers, potentially making it mandatory in 2024. Similarly, Malaysia will mandate e-invoicing for its largest taxpayers, with annual revenue of at least RM100 million, from August 1 2024, before expanding it to business taxpayers with lower revenues. Elsewhere in Southeast Asia, e-invoicing remains voluntary in Singapore and Thailand for now.
The differing approaches towards e-invoicing implementation and varying stages of progress reflect the unique experiences and challenges of each tax administration in Southeast Asia.
For example, the Bureau of Internal Revenue (BIR) in the Philippines finally overcame legal hurdles after the enactment of the Tax Reform for Acceleration and Inclusion Act in 2018 granted it the mandate to develop the Electronic Invoicing/Receipting System e-filing platform.
Meanwhile, Malaysia’s e-invoicing efforts – in common with many revenue authorities elsewhere – are part of larger plans by the Inland Revenue Board of Malaysia (IRBM) to digitalise tax administration.
In Indonesia, the starting point for e-invoicing appears to be a conversion of the conventional VAT invoice to an electronically readable format, allowing better tracking and matching of VAT invoices by the tax administrator.
The aims of digital tax administration
There are typically three key goals to digital tax administration.
The first is to drive efficiencies and cost savings. By digitalising end-to-end-compliance processes, huge volumes of paper can be removed from the system. That means:
Less time is taken to locate the right information;
Less physical space is needed to store taxpayer records; and
Taxpayer data can be easily compared year on year.
Second, once information is digitised, revenue authorities can gain far better insights from the resulting data using new technologies such as advance analytics, robotic process automation, and machine learning. What was before a mass of inadequate information now becomes a mine of value. This is of particular importance to revenue authorities, which wish to tackle not only determined tax avoidance but also the greater economic challenge of tax fraud and tax evasion. That, in turn, is why e-invoicing and the digitalisation of VAT or goods and services taxes have so often spearheaded many countries’ efforts.
Third, and perhaps of greatest importance for taxpayers, is that the digitisation of invoices allows revenue authorities to move closer to real-time working, shortening the processing of tax returns and tax assessments, as well as the timescale under which taxes remain under dispute. That is positive – anything that can increase tax certainty and reduce the quantum of funds that remain tied up in tax provisions will be good for business.
Valuable insights from e-invoicing for tax administrations
E-invoicing allows tax administrations to collect rich and robust data on business activities in real time. This provides a transparent and traceable trail of invoice data, which facilitates the detection of discrepancies and mitigates potential tax fraud. In essence, with a full complement of data from all players in the economy, a revenue authority should – in theory – be able to look across entire value chains, within hours of a month-end or quarter close.
Moreover, the integration of digital invoices directly into government-mandated platforms:
Reduces the risk of errors;
Strengthens tax audit capabilities; and
Facilitates more efficient tax administration.
Ultimately, this helps tax administrations to tax considerations and improve tax compliance, allowing them to collect the right amount of tax.
The benefits of e-invoicing extend beyond it being a cost-effective tool for tax compliance, according to Dr. Rasyidah Che Rosli, director of tax operations policy at the IRBM, who spoke at the EY Asean Tax Forum 2023. She shared that e-invoicing also allows tax administrations to provide a better service experience to taxpayers.
“E-invoicing is one of the biggest pillars in our digitisation strategy, that allows us to move to a model that we call compliance by design,” Dr. Rosli said. “Of course, we are completely aware that all tax authorities are collecting invoices electronically, and that many countries have already had good and bad lessons along the way. That’s why we have been careful to learn from countries including Mexico, Brazil, Chile, France, Italy, and South Korea as we designed our approach.”
At the same forum, Janette Cruz, assistant commissioner of the BIR in the Philippines, acknowledged that e-invoicing can help to speed up the processing of VAT refunds. For successful e-invoicing in the long term, she stressed that tax administrations will need to continuously enhance their system’s features to meet evolving needs.
Navigating the impact of e-invoicing on tax processes
E-invoicing brings numerous benefits to taxpayers in the long run, including:
Time and cost savings;
Reduced errors;
Enhanced tracking and visibility of payments; and
Simplified compliance.
It is essential for taxpayers to first familiarise themselves with the e-invoicing regulations in their jurisdictions. In particular, taxpayers need to understand three key implications.
1. The need to reconcile transactional data with tax accounts
E-invoicing requires taxpayers to submit transactional data to the tax administration. To safeguard the accuracy and integrity of the e-invoicing data, taxpayers will need to reconcile the transactional data within their ERP systems with the information submitted to the tax administration via the e-invoicing portal.
They will need to check information – such as invoice numbers, transaction descriptions, dates, customer or vendor information, and indirect tax details – to verify that there are no discrepancies or errors in the submitted data. The use of automated reconciliation software can streamline this process and help to resolve any discrepancies.
2. Tax administration database as the ‘single version of truth’
E-invoicing elevates the tax administration’s database as the so-called single version of truth. In essence, acting as the central repository of tax data, the tax administration’s database will now be considered to hold the most valid, reliable, and accurate version of that data.
Therefore, the information in taxpayers’ ERP systems should match what is in the tax administration’s database. Should taxpayers subsequently discover errors in the submitted data, they will need to rectify and reconcile those discrepancies. This may include:
Correcting the information in the internal ERP system and the tax administration’s database;
Deleting duplicate invoices; or
Cancelling the original invoices and uploading the corrected versions.
3. Align teams to ensure coverage and consistency
It is imperative to align the various teams that deal with invoicing within an organisation as they need to standardise the protocols for managing and maintaining the invoicing processes effectively. There needs to be internal alignment to address e-invoicing and the tax function needs to play a critical role from the outset.
Next steps in the process
A matrix should be established that clearly defines departmental responsibility (i.e., who is responsible, accountable, consulted, and/or informed) and a governance model that underpins it. The key is to ensure nothing falls between the cracks. Led by the tax function, the organisation should develop guidelines for invoice generation, validation, recording, reconciliation, and tax compliance. Team members will also need to organise, classify, secure, and back up a tax audit support file so that these can be easily retrieved for compliance or auditing purposes should the need arise.
Training is an area that is often under-addressed. While the design and implementation of any e-invoicing system is indeed of importance, it is critical that the users of such a system on a day-to-day basis are confident in using it. Moreover, organisations should consider if there is long-term training in place that takes into account staff movements in business units.
Embarking on a digital transformation journey
As tax administrations orchestrate the pivot towards new methods of record-keeping and tax return preparation, taxpayers will need to embrace this changing landscape and adapt to the new digital era. With the push to modernise tax systems, it is clear that e-invoicing also aligns with the broader digital transformation trend unfolding across industries.
Ultimately, e-invoicing presents an opportunity for taxpayers to digitalise, and simplify and manage tax reporting processes. Even if e-invoicing is not yet mandatory in their jurisdiction, taxpayers can get a head start by laying the groundwork for systems integration.
While there may be initial challenges associated with the implementation of automated systems to comply with e-invoicing, the long-term benefits far outweigh the time investment it will take and the early obstacles an enterprise is likely to encounter on its journey. By taking proactive steps to prepare for e-invoicing, taxpayers can achieve cost savings, efficiency gains, and greater accuracy in invoicing processes while meeting their tax obligations.
Taxpayers that are part of a multinational enterprise will likely find that many of the tools and processes they need are already available to them. This is especially the case where an enterprise is active in the EU, where the European Commission’s VAT in the Digital Age (ViDA) proposal, published in December 2022, includes measures to modernise the VAT system to avoid fraudulent activities, primarily through digitalisation.
ViDA's series of far-reaching VAT measures, which aim to reduce the €93 billion VAT gap in the EU and to make the VAT system more efficient for businesses, revolve around three pillars:
E-invoicing and digital reporting;
A single VAT return for trading across the EU; and
The platform economy.
One of the key proposals is the move to real-time digital reporting based on e-invoicing for businesses that operate cross-border in the EU.
In that regard, businesses with operations in the EU may find that investments being made in that part of the world might catalyse efforts in Southeast Asia. That extends not only to software and hardware but to processes, methodologies, and all other aspects that make up an e-invoicing strategy.
The benefits of a proactive approach to e-invoicing
More tax administrations across Southeast Asia are mandating the adoption of e-invoicing to better address tax considerations and improve tax compliance. It is crucial for taxpayers to understand the need to:
Reconcile transactional data with tax accounts;
Consider the tax administration database as the single source of truth; and
Align teams to maintain a tax audit support file.
Taxpayers that proactively prepare for e-invoicing can achieve cost savings, efficiency gains, and greater accuracy in invoicing processes. Before starting from the ground up, taxpayers should first look within their own organisation to see whether existing capabilities can be leveraged. Indeed, as Albert Einstein once said, “the only source of knowledge is experience”.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.
The views of third parties set out in this publication are not necessarily the views of the global EY organisation or its member firms. Moreover, they should be seen in the context of the time they were made.
