Saturday, September 5, 2020


IN a month from now, the Indian Govt will enforce a tax regulation that will have significant business impact for decades to come. GSTN  will make it mandatory for companies (initially those with over Rs 500 crore annual revenue) to register each B2B invoice with GSTN before goods are shipped. This is called "EInvoicing". Companies will have to electronically register / communicate to GSTN every detail of every invoice in real-time prior to shipment. GSTN will return a QR code that will have to be inserted on the invoice when it is printed / emailed and goods shipped.

This is a remarkable piece of regulation in many ways. In an era where businesses are already complaining of excessive compliance and regulatory burden, EInvoicing takes this burden to an entirely different level.

Firstly, this is a real-time compliance. Goods cannot be shipped unless the EInvoice is registered. Many companies issue several hundreds if not thousands of invoices daily, and these are usually created in real-time i.e., just when goods are ready to ship. EInvoicing adds a variable delay to every single invoice issued. If for any technical / connectivity reasons the EInvoice cannot be registered, shipments will be delayed. 

Secondly, the benefit to the Govt of a regulation like this are unclear. Given that it imposes a significant compliance cost on thousands of honest tax-paying companies, the Govt should have made public a detailed cost-benefit analysis. It is not clear what specific types of evasion this regulation would stop, or the perceived magnitude of the problem. GSTN has referred to 'spurious invoices', but no one has laid out a specific scenario which would be remedied by this regulation. That is because every such scenario is already covered by an existing regulation, or will be easily managed by a bad actor. GSTN has not published any estimates of the increased GST collections it expects as a result of this regulation. This is much like Demonetization, whose costs were visible and borne by the common man, but whose benefits are in the realm of conjecture. The effects of demonetization were temporary. The regulatory burden imposed by EInvoicing will be permanent.

Thirdly, there is the issue of privacy. The data sought from companies represents a whole different level of disclosure by private entities. The Govt wants to know the exact nature of goods sold, their quantity and price at which they were sold and to whom. Pricing of goods, and particularly services, is often a secret. Companies may sell the same product at different prices to different clients - for a variety of valid business reasons. This is confidential information. The information gathered by the Govt will hereafter allow the Taxman to ask you why a particular item was sold at Rs 100 per unit to buyer A, and at Rs 103 per unit to buyer B. (From there its a short jump to "deemed revenues". Those aware of the logic behind "deemed rent" will be worried). Conversely, the information on all inputs (incoming goods) into a company will also be known (because your suppliers will have to do EInvoicing too).

By implementing EInvoicing, Companies will be sharing their most sensitive data with the IRP and perhaps an intermediary. Imagine a radiator manufacturing company whose data of all radiators sold, to whom, at what price point, seasonal pricing variations, and much more being compromised. A competitor would love to get their hands on this data.

The fourth issue with EInvoicing is the enforcement. The only way to enforce this regulation is to have GST inspectors stop trucks en-route, to verify if EInvoice has been created and if the goods in the truck match those listed in the EInvoice. Such a verification can become absurdly complex depending on type of goods. What if the GST inspector declares that there is a mismatch? Can the poorly educated truck driver be expected to challenge the GST inspectors on the technical points of EInvoice? Can any company afford its trucks to be held up in transit? What recourse does the truck-driver or the company have?

Given the plethora of issues with EInvoicing, it is surprising that businesses and trade associations have not pushed back aggressively against it. Perhaps they are taken in by the Govt's assertion that it is only creating a 'framework' for electronic exchange of data between private parties. That however, is NOT the job of the Govt. 

Given the burden it imposes on honest businesses, GSTN is requested to consider the following:

a) It should revisit the schema and determine if it really needs to collect all the information it wants to.  

b) Announce an alternative to real-time EInvoicing.

c) Address the concern of trucks being stopped in transit.

It would be a favor to businesses struggling to recover from COVID.