The Federal Government often praises e-invoicing for its productivity benefits as opposed to its ability for tax compliance potential. Based on how the service is being used overseas it is highly possibility that e-invoicing will be used in the future to prevent tax evasion and to combat the black economy.
As the Federal Government considers its approach towards mandating e-invoicing for businesses, the ATO and other government agencies have announced that they will not be able to access e-invoices exchanged between businesses. This means they will not be able to view the e-invoices contents and details.
This announcement rules e-invoicing out as a tax compliance tool in Australia. However, a number of governments across the globe have increasingly chosen to utilise the benefits of e-invoicing to facilitate tax compliance.
By looking around the world, electronic invoicing has proven to be one of the most efficient ways to guarantee that value-added tax credits are correctly attributed to trading partners. The validation of invoices is one of the major drivers to combat value-added tax (VAT) evasion around the world, which can harmfully impact entire supply chains.
South Korea is a great example of a country that illustrates how electronic invoicing can be applied to reduce value-added tax evasion and increase automation of tax compliance functions.
The results of a survey conducted which included the responses of South Korean tax payers and tax practitioners found that 69% of the participants agreed or strongly agreed that compulsory electronic tax invoicing has contributed to decreasing value-added tax evasion by raising transaction transparency. 73% of the people surveyed agreed or strongly agreed that it has enhanced taxpayer service by facilitating the convenience of tax filing or automating the issuance of invoices. This survey was conducted as part of a World Bank research study.
The black economy costs the Australian economy approximately $50 billion. As the ATO continues to expand its data-matching capabilities to discover any non-compliance, e-invoicing could in the foreseeable future take on a tax compliance role.
In 2020, the ATO flagged that they might soon begin automating business activity statements (BAS). This would be done by tapping into a business’s natural system, including their bank accounts.
Although e-invoicing has the potential to streamline current invoicing procedures, The Institute of Public Accountants general manager of technical policy Tony Greco is cautious of the prospect of an ATO-completed BAS.
He believes that “modern software packages can pre-populate most labels in a BAS anyway with or without e-invoicing, but the BAS can be a complex animal for most entities due to the complexity of our GST system,” says Mr. Greco.
“E-invoicing does not remove such complexity and human oversight is normally necessary to ensure it is accurate. Manual adjustments are a common occurrence, so unless you simplify our GST rules, automation can be problematic” says Mr. Greco.
The KPMG believes that the ATO will continue to use its powerful data analytics capabilities to identify non-compliance, but believes any changes to BAS lodgements will need to be delicately managed.
The KPMG contends that e-invoicing will help with the automation of BAS preparation and compliance, but any significant shift in the BAS assessment mechanisms for example; the BAS being self-assessed v assessed by the ATO is an issue that would need to be considered with caution.
“In the event that the ATO assisted small businesses with prefilling the BAS, businesses should have the ability substantiate an alternative position” says a spokesperson for KPMG.
KPMG has advised the government against rushing to implement a compulsory approach to e-invoicing. KPMG has cautioned that compliance costs and competing priorities will weigh significantly against businesses.
It is in the opinion of KPMG that the governments desire for mandating e-invoicing – beginning with large businesses has failed to consider the compliance burden faced by large businesses who are now obliged to participate in the Payment Times Reporting Scheme.
KPMG wants the government to resist adopting a mandatory approach until at least 2023, this recommendation was reached upon the conclusion of the legislative post-implementation review of the Payment Times Reporting Scheme.
In their submission to The Treasury, KPMG expresses that they are concerned that many businesses may not have the finances to invest in e-invoicing even if there is a positive return overtime. They believe that small and medium businesses are more than likely to see an increase in compliance costs during a period when only a small percentage of businesses are capable of funding necessary system changes.
“This is particularly relevant during the current covid-19 pandemic, where profitability concerns and unplanned IT investments may have depleted funding that would have usually been used to fund e-invoicing compliance. For SMEs with limited resources in relation to their invoicing and purchasing functions, mandatory Peppol e-invoicing may cause an initial increase in compliance costs and delays to their invoicing and payment cycle.” they outlined in the statement sent to The Treasury.