MNEs welcome India’s e-invoicing soft landing period

E-invoicing became mandatory as of October 1 for taxpayers with an annual turnover exceeding INR 5 billion ($67 million), following a model of gradual implementation. However, late on the eve of the effective date, India’s Central Board of Indirect Taxes and Customs (CBIC) notified businesses [CM(1] that it would waive penalties for non-compliance during October 2020.

MNEs welcomed the last-minute relaxation as they struggled to keep pace with a number of changes to the requirements, as well as the impact of COVID-19, in the weeks leading up to its introduction and give them an opportunity to test their systems.

“This is a welcome move,” said Vikas Garg, head of indirect taxes at Siemens. “The CBIC have shown that they are serious about this measure, too many extensions sometimes puts a question mark over the intentions of the government. It helps everyone test their systems and go live, it also helps the government see how much traffic they can manage without any hiccups.”

The CBIC has cautioned that no such relaxation would be available for the invoices issued from November 2020 onwards and all the applicable provisions of the Central GST (CGST) Act and rules would apply for any violation.

Businesses have struggled to keep up with a number of amendments being made to e-invoicing requirements that were being made only a few weeks before the effective date. This meant that MNEs that had prepared to be compliant for the October deadline, which had been deferred for six months, could not carry forward those adjustments.

“In the last six months, there have been multiple changes in the e-invoice schema. Even until two or three weeks ago, there were changes happening in the API for e-invoicing. Even if you were ready six months back, you could not run the same changes,” said Garg.

As a result of these changes tax departments have had to redirect their internal efforts and commit additional resources. Manish Agarwal, head of tax at Sasken Technologies, noted that while he had not hired any additional tax professionals they required the help of external consultants, who implemented the e-invoicing into their ERP system, which came with a one-off implementation cost and recurring maintenance cost.

India’s introduction to e-invoicing has been fraught with difficulty, taxpayers have argued that the original timeframe for implementation was too short, and later, that the INR 5 billion threshold largely defeated the point of enforcing compliance.

Taxpayers have already encountered issues with the e-invoicing requirements, namely around the login portal and an announcement on September 30 that e-invoicing is applicable if turnover exceeded INR 5 billion in any financial year from 2017 to 2020, which could catch some companies by surprise. To add to Indian taxpayers’ burdens, the introduction of tax collection at source (TCS) fell on the same date.

MNEs have also noted that uncertainty remains over generating QR codes as part of the e-invoicing obligations, as the code is not generated from the portal and customers may reject the invoice without this information.

Under the existing processes if a company has generated an e-invoice, it has a 24-hour period where it can cancel the invoice in case they no longer want to issue it. Taxpayers have said that this timeframe is too short because a transaction often involves moving products across large distances and there may issues and delays surrounding the transportation of goods. A 48-hour or 72-hour timeline would help companies to plan their logistics without having to worry about cancelling the first invoice and having to issue another one after a 24-hour period.

Additionally, tax directors have called for an extension of the no-penalty timeline in order to allow companies to stabilise their systems and see if there are any teething problems.

“E-invoicing should be made optional for a few months and the government should provide some small incentive to companies for the early adoption of e-invoicing. Once the process becomes smooth, then it can be declared mandatory,” said Agarwal.

India has taken the right first step to allow a soft-landing period for e-invoicing. However, changing requirements and last-minute announcements are a headache for tax directors, which could discourage foreign investment. The government needs to provide long-term plans and clear roadmaps to allow for smoother compliance processes.

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