E-Invoicing and Curbing Tax Evasion

• 15 May 2023

For Prelims: E-Invoicing, Tax Evasion, GST, Automated Return Scrutiny Model, e-Way Bill, Input Tax Credit.

For Mains: Reducing the threshold of E-Invoicing, its significance and Related Concerns, Tax Evasion.

Why in News?

Recently, the Government has lowered the threshold for businesses to generate e-Invoice for Business-to-Business (B2B) transactions, from Rs 10 crore to Rs 5 crore with the aim to curb Tax Evasion and increase compliance under the Goods and Services Tax (GST) Regime.

• The government has also rolled out the Automated Return Scrutiny Module (ARSM) for GST returns in a backend application for central tax officers.

What is the Automated Return Scrutiny Module?

• The ARSM is a part of the ACES (Automation of Central Excise and Service Tax)-GST backend application that uses data analytics to identify risks and discrepancies in GST returns.
• This helps tax officers to scrutinize the GST returns of Centre Administered Taxpayers who are selected based on the risks identified by the system.
• The module also generates alerts if any non-compliance is detected.
  • The automated return scrutiny module has already commenced with the scrutiny of GST returns for FY 2019-20, with the requisite data already with the tax officers.

What is e-Invoicing Under GST?

• About:
  • e-Invoicing is a system where B2B (Business to Business) invoices and some other documents are electronically authenticated by the GSTN (Goods and Service Tax Network) for further use on the GST portal.
  • e-Invoicing involves submitting already generated standard invoices on a common e-invoice portal, automating reporting with a one-time input of invoice details.
  • An identification number is issued against every invoice by the Invoice Registration Portal (IRP), which transfers the invoice information in real-time to the GST portal and the e-Way Bill portal.
    • E-Way Bill is a compliance mechanism wherein by way of a digital interface the person causing the movement of goods uploads the relevant information prior to the commencement of movement of goods and generates an e-way bill on the GST portal, and therefore facilitating faster movement of Goods.
  • This eliminates manual data entry while filing returns and generating e-way bills.
• Objectives:
  • The GST Council in its 37^th meeting in September 2019 had approved the standard of e-invoice with the primary objective to enable interoperability across the entire GST ecosystem.
• Significance:
  • With a uniform invoicing system, the tax authorities are able to pre-populate the return and reduce the reconciliation issues.
  • With a high number of cases involving fake invoices and fraud availment of input tax credit, GST authorities have pushed for implementation of this e-invoicing system which is expected to help to curb the actions of tax evaders and reduce the number of frauds as the tax authorities will have access to data in real-time.

What is the Significance of Lowering Thresholds for e-Invoice?

• Lowering the threshold for e-invoicing is significant because it expands the compliance mandate for more businesses, especially small and medium-sized enterprises, and helps boost GST revenue collections.
• It is also expected to curb tax evasion, broaden the GST tax base, and provide more data to tax authorities for better compliance.
• By requiring more businesses to adopt e-invoicing, the government aims to reduce mismatch errors and fraudulent activities associated with the generation of fake invoices.

What are the Concerns related to the Decision?

• Lowering the threshold for e-invoicing has raised some concerns for businesses, especially small and medium enterprises (SMEs), as they may face challenges in adapting to the new requirements and investing in the necessary technology to comply with e-invoicing norms. This could increase their compliance costs and pose a burden on their cash flows.
• Additionally, there may be challenges in terms of the capacity and preparedness of the GST Network (GSTN) to handle the increased load of e-invoices generated by a larger number of taxpayers. This could lead to technical glitches and delays in invoice generation, which could impact the smooth functioning of businesses.
• The maximum amount of fraud happens in B2C (Business to Consumer) invoices as no ITC (Input Tax Credit) is involved. As of now, e-invoicing is not applicable to B2C transactions.

What are the other Measures to Curb Tax Evasion?

• The Fugitive Economic Offenders Act, 2018
• The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
• Prevention of Money Laundering Act, 2002.

Way Forward

• The government can provide support to small and medium enterprises in adopting the new system, including providing training and resources to help businesses comply with the new regulations.
• Additionally, steps can be taken to address concerns around data privacy and security to ensure that businesses feel comfortable sharing their data in real-time.
• e-invoicing applies only to B2B invoices. Thus, a separate workflow must be in place for delivery challans, bill of supply, job work and other similar transactions.

UPSC Civil Services Examination, Previous Year Questions (PYQs)

Q. Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?

(a) Diversion of resources to the purchase of real estate and investment in luxury housing.
(b) Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.
(c) Large donations to political parties and growth of regionalism. 
(d) Loss of revenue to the State Exchequer due to tax evasion.

Ans: (d)

Source: IE