Once real-time reporting of transactions to a central portal starts, it will be practically difficult for the businesses concerned to reduce their tax liability by inflating the claims for input tax credits.
With a foolproof system to match all transaction invoices being delayed inordinately, the Goods and Services Tax (GST) Council will soon have a facility to capture transactions of large B2B businesses on a real-time basis. The move will enable tax officials to close most routes of large-scale tax evasion, even as they fear the wait for nationwide invoice-matching system, that missed several deadlines, may get longer.
Once real-time reporting of transactions to a central portal starts, it will be practically difficult for the businesses concerned to reduce their tax liability by inflating the claims for input tax credits. According to official sources, the system would be implemented in phases and could finally cover most of the taxpayer base. Initially, it would be made mandatory only for relatively large companies involved in business-to-business (B2B) transactions, they added.
The government is concerned about the GST collections continuing to trail the targets by wide margins. While last year, the actual collections were about `60,000 crore less than the revised estimate (which itself was a full `1 lakh crore lower than the original budget estimate), the average collection/month in April-May period this fiscal was `1.06 lakh crore against the targeted `1.14 lakh crore.
Experts said the primary difference between proposed ‘e-invoices’ and the return-filing system with invoice-matching feature as planned earlier is that the former allows real-time reporting. While a system of simple-yet-comprehensive returns, buttressed with invoice-matching is considered to be an important anti-evasion tool, under this system, frauds can be identified only at the end of the monthly tax payment cycle. This often leaves escape routes for habitual evaders and fly-by-night operators.
The ‘e-invoicing’ system has examples in several countries that have value-added taxation but the government is actively considering the South Korean-model for implementation in India. Under this model, each invoice when reported to the central portal would receive an invoice reference number (IRN) for authentication of the supply bill. “IRN generation would be across different platforms including a central portal directly connected with ERP of companies. For smaller businesses in far-flung areas with unreliable connectivity, offline utility would eventually be released. SMS and mobile application would also be used for the same,” Prashanth Agarwal, partner, indirect tax, at PwC India said in a webcast. He added that any invoice generated without IRN will not be eligible for credit and hence would curb circulation of fake invoices.
The government has formed two committees – one to deal with policy and legal aspect and another to deal with technical aspects – of the system. The next GST Council meet, which is tentatively scheduled for June 20, could approve the project. It is also expected that in due course, e-invoicing would replace e-way bill generation as IRN can be used by businesses to transport cargo.
While the concept of e-invoices and its provision in the law has been around since GST’s inception, the delayed implementation is on account of time taken by the GST Network (GSTN) to stabilise to the existent return-filing system.
“We are handling about 20 crore invoices every month, which is only a third of our capacity. Although, the technical committee is estimating the eventual load on the system when e-invoicing is implemented, the glitch-free functioning of e-way bill portal suggests that we can handle a similar process,” a senior GSTN official said on condition of anonymity.
The e-invoicing system could be implemented along with the roll-out of the new simplified return-filing system from October.