The indirect tax ecosystem in India is moving into a phase of technological expansion with an aim to further the principle of ‘Ease of Doing Business’. Adoption of technology is now an integral part of our daily lives, and leveraging this fast-growing revolution, the government has also introduced and adopted several windows through which taxpayers can leverage technology and digital solutions, qua their businesses.
India has been consistent in their efforts to introduce tax technology in the indirect tax ecosystem. One of the early adopters of the E-Way Bill infrastructure for transport, in Goods and Service tax, the adoption of technology has now been phased out to offer solutions in all areas of indirect taxation. This illustratively includes processes to match input tax credit; e-invoicing; working of the GST network digitally; to adopting technology-based assessments [the scrutiny side of the table] which obtain and utilize business intelligence, for effective regulation.
On the Customs front, India adopted the faceless assessment system in 2019, to bring clearance for home consumption completely online [where assessments of Bill of Entry are conducted nationally, instead of the home port of import] and has now progressed to illustratively introduce complete digital solutions for obtaining benefits in regulation [like adopting a digital platform to regulate the Import of Goods at Concessional Rate of Duty [IGCR] Rules].
The adoption of digital technology in tax compliance has equally prompted businesses to focus more attention to data and technology. For example, input tax credit must now be taken through digital matching of input and output returns of the supplier and recipient on the GST electronic portal. This behoves management to ensure that both theirs, and the supplier returns, are filed correctly on the said portal to achieve the desired compliance, without which there is a significant risk of disallowance of input credit, leading to an increase in cash-flow in the business.
Continuing the adoption of technology, today, after achievement of a required threshold, businesses are required to generate e-invoices with QR codes. This process involves an intricate amalgamation of uploading data, validation, generation, and circulation of the invoice. The endgame here is deep-rooted compliance, where every facet of the transaction can be tracked online, without expensing time cost on physical audits, and eliminating the shift through mountainous paperwork, to determine compliance.
On the Customs side of the ecosystem, faceless assessments have been a game changer, reducing dwell time in the clearance of imported goods. Often in the past, imported consignments would get stuck due to the non-availability of officers for assessment or bumps in the electronic system used for clearance. Today, Bill of Entry(s) are filed electronically and can be assessed by any assessment officer of Customs, nationally, on the electronic portal. The supporting documents for import are also required to be uploaded electronically on the portal, making them available to the assessing officer at the touch of his dashboard. This has eliminated the need for filing physical paperwork, making the system a bit more efficient than before. Of course, there are teething problems in every ecosystem, but the digitization framework has practically improved clearance times at ports, incentivizing the supply chain.
The adoption of digital processing and compliance is slowing becoming the functional spine of the indirect tax ecosystem. In addition to harnessing technology for efficiency, the Government has now adopted electronic processes to gather ‘business intelligence’ for assessing compliance done by businesses. The success of this measure is evident, as over the last year, the use of business intelligence had led to a significant number of input tax credit frauds being caught, and perpetrators arrested. The capture of these dubious transactions has also increased Government revenue from the levy of associated penalties and collection of the tax evaded, which in turn have led to an uptick in the collection figures reported. Without this digital backbone, such infractions would have been impossible to detect, as manual audits were incapable of capturing/ processing the intricacy of the transactions involved, and hence the loopholes present were being continuously exploited for gain.
While the adoption of digital governance has led to a parallel evolution of the stakeholders, platforms themselves must be consistent in their functioning and availability. The digital platforms should be efficient and reduce significant downtimes, as the absence of the same would defeat the entire idea of efficiency and ease. Businesses must also be future facing to extract the best out of the system, as the transformation has already begun, and tax functions must therefore put their best foot forward to embrace this digital change.