At midnight of July 1, 2022, the Goods and Services Tax (GST) regime will turn five years old. In these years, unlike newborns taking baby steps, GST has taken a giant leap in its evolution. Before the GST era, Central and state governments had a limited degree of digitisation for tax compliances and administration. Central and state laws required taxpayers to file summary returns on a monthly or half-yearly basis. Thus, governments had a small slice of taxpayer’s data making it difficult to identify tax leakages and frauds. Tax audits or assessments were conducted based on limited intelligence and were largely dependent upon information shared by taxpayers.

Since the introduction of GST, its four pillars namely Government, Taxpayers, Tax Authorities and the Technology backbone (i.e., common portal), have significantly evolved. Technology played a pivotal and driving role by supporting the other three pillars as follows:

1. Technology

a) GSP and ASP ecosystem — innovation in privatising service provider ecosystem has helped many large and small organisations to ease their GST compliances

b) Validating input tax credit ('ITC') claims — restricting ITC claims to the extent of reconciled transactions has auto-validated ITC claims

c) E-way bill and e-invoices — one of the first countries to introduce two real-time compliances

d) Automated refund workflows — Refund workflow from the filing of refund claim to disbursement as well as providing a detailed status to taxpayers is automated

2. Government (Central and State):

a) Increasing tax collections — Formalisation of the economy through one tax technology platform at the national level

b) Expanding taxpayer base — Fear of tax fraud detection and the benefit of input tax credits across goods and services have encouraged many taxpayers to register

c) Educated policy decisions — with a single technology platform, the government has a national view of each industry sector and geographical region which helps them take educated policy decisions

3. Taxpayers

a) Uniformity in taxation — Uniform tax rates and rules across the nation and reduction in cascading effects of taxes

b) Automated compliances — Integration with GSP along with value-added services provided by ASPs have significantly automated compliances

c) Process standardisation — Emergence of centres of excellence in the industry adopting standard operating procedures across logistics, supply chain and value chain

4. Tax authorities

a) Automated workflows — Releasing the bandwidth by automating mundane processes

b) Reduced tax evasion — Helping field officers launch targeted investigations and identify the origin and beneficiary of any tax fraud

c) Real-time data — Timely intervention thereby enhancing tax compliances and garnering more revenue

What to expect next

The businesses understand, accept, and adapt to the fast-paced technological changes and their impact on the entire supply chain and value chain. While technology creates risks, it also offers opportunities to deliver benefits. Businesses now require more access to enterprise data which not only supports tax but helps all business functions. The next phase of tax technology transformation appears to have already begun:

1. Invoice Registration Platform (IRP) ecosystem — The current IRP is centralised and hence, is a single point of failure. The government has now selected 4 private players in this space to unlock the value of the IRP ecosystem. This will enable the government to expand the B2B e-invoice base, introduce e-invoicing in B2C, integrate with trade financing, provide business continuity to taxpayers, automate accounts receivable and payable processes etc.

Private IRPs are likely to further tax digitisation:

a. Seamless integration across the supply chain and automated compliances

b. Invoices can be validated and communicated to the respective parties on the fly without requiring any manual intervention

c. With the availability of validated invoices, financial institutions can be introduced to this ecosystem, thereby automating trade financing

d. Through real-time receipt of vendor e-invoices and integration into the organisation’s ERP system, the accounts payable process can be automated

e. Going global with e-invoice — Enabling transmission and reception of cross-border B2B transactions by integrating the ecosystem with international e-delivery systems

2. Artificial Intelligence (AI) and Machine Learning (ML) — The introduction of AI/ ML as a tool has enhanced the way the tax authorities used to administer taxpayers and tax collection. It will allow the government to accept or reject the application for registration, refund, rebate etc. The use of AI/ ML and such sophisticated data science models will enhance the entire tax administration and investigation process in times to come.

India has been a pioneer in bringing digitisation across business and tax processes and this trend is now adopted by many countries globally. In this global technology-driven tax transformation, staying ahead of the curve for businesses is getting tougher and the answer lies in embracing technology with open arms.

—The authors, Utkarsh Sanghvi, Tax Partner, EY India and Abhishek Kumar, Director, EY. Views expressed are personal

(Edited by : Ajay Vaishnav)