E-invoicing and its impact to the Financial Services industry

Written by Deloitte Southeast Asia Indirect and Tax Technology Consulting Partner Sen Elalingam. The below is his personal view and may not represent the views of Deloitte.

As a response to increasing demands for greater transparency as well as addressing value-added tax (VAT)/goods and services tax (GST) gaps, governments globally are identifying electronic invoicing (e-invoicing) as a means to achieve this. Across our region a number of countries have either implemented or announced the intention to implement such measures, the most recent being the Philippines which is conducting a phased rollout for specific taxpayer groups throughout 2023.

What is e-invoicing?

E-invoicing is the digital exchange of invoice information directly between a supplier and a customer’s accounting systems.

The most common form of e-invoicing in our region is the “clearance model” followed closely by the “post audit” model. The clearance model (adopted or in the process of being adopted in India, China, Korea, Vietnam, Thailand, and the Philippines) requires the invoice information to be transmitted to a tax authority’s system and “cleared” before it can be sent. The “post audit” model, usually regulated by the European Union backed “PEPPOL” framework and more widely seen in Europe (now adopted or in the process of being adopted in Singapore, Japan, Australia, and New Zealand) simply involves the use of a third-party exchange for the information to be transmitted without any tax authority involvement. The tax authority can conduct audits to verify tax information in the normal manner that we see today.

Why is this a concern for the industry?

The lack of a uniform and standardised approach across the region poses significant challenges. For one, the industry already has unique challenges when it comes to invoicing and GST/VAT reporting such as distinguishing between taxable and non-taxable transactions and ascribing values for VAT purposes to financial transactions at a transactional level. This will now need to be overlayed with the additional reporting requirements brought about by e-invoicing. Governments will now have direct access to your sales, and oftentimes purchasing data (from e-invoicing registered suppliers), bringing the onus to have your enterprise resource planning (ERP) system data “right first time” to be greater than ever.

The software that transmits the data between your ERP, the government e-invoicing portal and customers, otherwise known as middleware, will also need to be closely considered in any global/strategic approach. For financial services in particular, there are often multiple sources generating documents for customers which need to be transmitted to the government e-invoicing portal, creating the need to map multiple data sets in order to transmit the correct data to the government.

Whilst countries are yet to mandate the use of e-invoicing for all transactions (some have limited the rollout to business to government [B2G] e.g., Singapore, Australia, and New Zealand as of 2022) the expectation is that in the next three years it is likely to be mandated for all B2G and business to business transactions (and in unique cases business to consumer) in many countries across the region.

What approach should you take?

Businesses need to take both a local and global view to the adoption of e-invoicing. The global strategy needs to be overarching but given the lack of a uniform model, there needs to be consideration and acceptance that local requirements will differ in some cases marginally and in others significantly and so flexibility needs to be built in. The planning would need to go beyond tax, as there are impacts to systems both front-end and back-end—businesses will need to review their more permanent (master data) and transactional data to ensure that what is now being transmitted to the government from your ERP all the way through to your billing systems is correct in both format and substance. Customer, vendor management and existing standard operating procedures will also need to be reviewed and adjusted as necessary to ensure robust and sturdy processes exist around your e-invoicing transmission flow.

In terms of middleware approach, some businesses opt to create their own custom tools to meet mandates locally, some look to their ERP provider for add-ons or tools which are pre-made for their systems, while others look to third party middleware vendors which have software which sits external to your ERP but can interface across multiple financial systems. For financial services, we oftentimes see third party middleware providers being the preferred option seeing as they can assist in the interface of data from multiple disparate systems through a platform that’s sits external to your ERP.

When should you start?

In addition to the countries that have already implemented measures, the Philippines has been conducting a pilot launch for 100 top taxpayers in the country throughout 2022 but will be adopting a phased approach throughout 2023 with businesses under the large taxpayer service, exporters and e-commerce businesses being “invited” to participate with mandatory enrollment expected shortly for these taxpayer groups. Australia has announced a phased rollout under the PEPPOL regulated framework starting in 2023 while Japan is expected to introduce e-invoicing (also under PEPPOL) starting October 2023. Malaysia has announced its intention to adopt e-invoicing from 1 January 2024.

In considering the pace at which these measures are being rolled out by governments in the region, the lack of uniformity in models and the wide-reaching impacts to systems, business operations and cash flow, there is no better time than now to start your planning and preparations for e-invoicing mandates in the region.

For further information including detail on technology solutions, please contact Sen Elalingam.

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