Indirect Tax developments on electronically supplied ... - Deloitte

Richard Mackender / Candy Tang / Nu To Van / Shrenik Shah

3 March 2022

Indirect Tax developments on electronically

supplied services (ESS) and e-invoicing in Asia Pacific

The Dbriefs Indirect Tax series

© 2022. For information, contact Deloitte Touche Tohmatsu Limited.

• Introduction to today’s webcast and to the speakers

• E-invoicing in China

• E-services tax and e-invoicing in Thailand

• Electronically supplied services and e-invoicing in India

• Wrap-up

• Questions and answers

Agenda

2


Are you familiar with e-invoicing?

• Yes of course, we have to use it but I would like to learn more about the trends in the region

• Not really, that’s why I am here today

• What’s e-invoicing?

• Prefer not to say

Polling question 1

3


China

4


GDP versus national tax revenue

E-invoicing in China

1023 1063 1256 12033212 3532 3730 36435638 6153 6235 56794565 4892 4578 4907

82712

90031

99087 101599

114367

0

20000

40000

60000

80000

100000

120000

2017 2018 2019 2020 2021

Year

National tax revenue and GDP (2017 – 2021)

Consumption tax Enterprise income tax Value added tax Other taxes National GDP

Billion (yuan)

Total: 14437Total: 15640 Total: 15800 Total: 15541 Total: 17273

Details to be

published

soon

5


The journey of e-invoicing

• Started with B2C

– Implementation of e-general VAT

invoices with a focus on specific

industries like e-commerce,

telecommunication, finance,

express, utilities, and catering

• Explored B2B

– Implementation of the

pilot program for

e-special VAT invoices in

selected cities

• New: Fully-Digitalized Electronic

Invoices (FDEI)

– Pilot program within a small group

of selected companies in Shanghai,

Guangdong Province, and Inner

Mongolia

• Developed the system

– The development of the

VAT issuing system for

e-special VAT invoice

• Pilot program on newly established

companies

– Rolled out the pilot program of

e-special VAT invoices to all newly

established companies national wide

End of

2020

End of 2021

Further rollout

in 2022?

2015 Middle of

2020

• A commonly asked question

– When and how can we be

prepared while the timeline

is yet to be known?

6


Key features of FDEI

02

Removal of special devices

The devices (e.g., special hardware, USB Key, printers) are not required

in the FDEI pilot program, where businesses may issue, an FDEI simply

through the online platform

01New invoices layout

An FDEI may be in the form of electronic data without being converted

to a specific page layout file (e.g., PDF, OFD)

03

Allowing status tracking

The platform allows businesses to track the relevant status of the

FDEIs, including whether the FDEI has been posted for accounting

purpose, the input VAT has been credited, etc.

04

Simplifying the total invoicing cap

The ceiling is computed according to certain pre-set rules in the

system based on certain factors such as the business' tax compliance

rating, industry status, etc.

05

New coding system

The unique code (20 digit code) is assigned to FDEI06

More invoice elements

FDEI allows businesses to add self-customized elements to the invoice

information to better suit internal management needs

7


FDEI versus existing e-invoice and paper invoice

Invoice

management

Invoice delivery

Invoice ecology

FDEI Existing e-invoice and paper invoice

• Can be issued as soon as the completion of tax

registration

• The ceiling of the total invoicing amounts is

automatically adjusted based on pre-set rules in the

system

• In certain situations, either seller or buyer can initiate

the process to issue the "red-letter" FDEI

(the credit note) which offers more flexibility

• FDEI can be delivered through "tax digital accounts“ on

a real-time basis

• Businesses can easily sort out the full invoice data,

which makes the use of invoice data more efficient and

convenient

• The open ecosystem offers "one-stop" services and

integrated functions of invoice operations

• The government is open to select multiple qualified

system suppliers

• Several steps to apply for the golden tax machine, type

of VAT invoice verification, etc. before issuing invoices

• A separate application for invoicing quota increase or

adjustment

• Invoice issuance, delivery, inspection and input VAT

deduction are managed through different government

systems

• Limited system suppliers are selected by the

government

• The invoices are delivered through email or SMS in

specific PDF/OFD format

• The recipients need to manually download, open,

process, and post for accounting purposes

8


Impacts

Timing

CentralizationReconciliation

Risk control

ArchivingPosting method

Convenience

Posting status

Cancellation of the pre-steps

to issue the invoice

Capability of real-time invoice

issuance upon revenue recognition

Centralized invoice management

without specific devices required

E-archiving possibilities

Any tax incompliant issues would have the

negative impact on the FDEI issuance

Requirement of FDEI posting status

management

Faster and easier posting experience

based on “invoice number” without

any electronic documents

Customized invoicing elements

facilitate reconciliation and alignment

of the “business, finance, and tax"

Impacts on businesses

9


How to get

ready?

Streamlining invoicing work process

Enhancing tax compliance rating

Developing technology solutions for archiving FDEIs

Leveraging self-customized invoice elements

Upgrading ERP system to integrate multiple work processes

Suggestions to businesses

10


What lies ahead

E-invoicing in China

Government Taxpayers What next?

• FDEIs is brand new for e-invoicing in

China

• The current pilot program is within

a small group of selected

companies in 3 selected regions

• Timeline for further rollout is yet to

be announced, but is expected soon

within this year

• Review and streamline the current

invoicing work process

• Consider how to take advantage of

e-invoice/electronic data to

empower business operation

• Maintain/enhance the tax

compliance rating

• Further rollout the FDEIs to more

taxpayers

• Integrate the existing e-invoice

(PDF, OFD) to the FDEIs

• More qualified 3rd software service

providers will be introduced

11


Electronic supplies of services rules

• Cause me compliance issues in multiple countries

• Affect my business in a few specific locations where the rules are broad

• Don’t affect my business at all

• I’m not sure, that’s why I’m here today

Polling question 2

12


Thailand

13


E-service tax

14


• Came into force on 1 September 2021

• Business operators providing e-Services from overseas and used by non-VAT registrant users (B2C) in Thailand are required to register for VAT and

pay for VAT on a monthly basis when their annual income exceed THB 1.8 million in an accounting period

• The foreign e-service providers and e-Platform operators are not required to prepare tax invoices but must prepare output tax report

• Not allowed to claim the input tax

• ESS is defined as service delivered over the Internet or other electronic network, “essentially” automated and impossible to ensure in the absence

of information technology

• Online downloading services e.g., music, games, movies, or sticker in chat application

• Streaming services e.g., concert, events, or games

• Advertisement services on websites or applications

• Payment services which is delivered over electronic network and the nature of service rendered is essentially automated and impossible to ensure

in the absence of information technology

• Others

Business impact

Scope of VAT on electronic services

E-services tax in Thailand

15


95

812

35

0

10

20

30

40

50

60

70

80

90

100

Sep Oct Nov Dec Jan

2021 2022

Nu

mb

er

Year

Non-resident VAT registrants in Thailand

Non-resident VAT registrants (up to February 2022)

E-services tax in Thailand

16


E-tax invoice and e-receipt

17


Implementation

E-invoicing – Thailand

Micro business operator

(Revenue ≤ 1.8 MB)

1 January 2018 1 January 2022

Large business operator

(Revenue > 500 MB)

Medium business operator

(30 MB < Revenue ≤ 500 MB)

Small business operator

(1.8 MB < Revenue ≤ 30 MB)

1 January 2020

Implemented with effect from 19 June 2017

“Expected implementation” date

Key features

Contain all required particulars

of “normal” tax invoice1

Elimination of fake/duplicate

invoices2

Adoption of e-Tax Invoice and

e-Receipt still voluntary basis3

Ease (and transparency) of

doing business and VAT refund4

18


Current status


More than 1,000 e-tax invoice and e-receipt registrants (as of December 2021)

-

20

40

60

80

100

120

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2013 2 2

2014 1 1 3 1

2015 1 1 5

2016 1 1 1 2 1 1

2017 1 2 1 3 10 14

2018 41 7 9 3 6 7 11 7 11 28 16 19

2019 17 4 12 6 9 6 12 35 14 14 23 102

2020 5 20 16 33 3 33 15 56 19 30 29 19

2021 28 23 23 29 14 30 74 62 34 33 67 118

2022 67 7

Taxpayers enrolment

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 19


Particulars


Digital signing of e-invoice and e-receipt

Must contain all required particulars of normal tax invoice

Three ways to upload e-invoice and e-receipt to the revenue department

1.Host-to-host

2.Service provider

3.Web upload

Documents covered

1.Tax invoice

2.Abbreviated tax invoice

3.Debit note

4.Credit note

5.Receipt

Increase tax incentivein order to decrease CIT from the expense paid for the investment in e-tax preparation system

Expectation1. The revenue department plans to encourage Thai society to become a digital economy

2. Improvements in validations and verifications to control fraudulent invoices

20


What lies ahead

E-invoicing in Thailand

Government Taxpayers What next?

• The revenue department plans to

encourage Thai society to become a

digital economy

• Provision of tax benefits but

“expected” implementation dates

not met

• Currently still not mandatory

• Still low take up

• Mostly wait and see approach and

“reluctancy”

• Mostly companies with huge

volume of transactions have started

implementing e-tax invoicing

• Timeline for further “mandatory”

rollout yet to be announced

• Possibly more tax incentives

provided for companies to

implement e-tax invoicing?

• Companies to start considering how

to take advantage of e-invoicing to

improve efficiencies in business

operation and increase compliance

levels

21


India

22


Electronically supplied services

23


OIDAR service

provider

Outside India India

Non-business/unregistered

service recipient

Business/registered service

recipient

GST liability on OIDAR service provider

GST liability on service recipient

under reverse charge

What are OIDAR services?

• Services delivered over internet or electronic

network

• Supply is essentially automated involving

minimal human intervention; and

• Impossible to supply in absence of IT

Specific electronic services within ambit of OIDAR

• Advertising on the internet

• Cloud services

• Provision of e-books, movie, music, software and other intangibles through

telecommunication networks or internet

• Providing data or information, retrievable or otherwise, to any person in electronic form

through a computer network

• Online supplies of digital content (movies, television shows, music and the like);

• Digital data storage

• Online gaming

Place of supply: location of recipient

Concept and liability under GST

GST on electronically supplied services

24


Identifying liability for

OIDAR service

providers

1

2

3

GST liability on intermediary (outside India) who

facilitates OIDAR services between overseas supplier

and recipient located in India

Apply tests of automated delivery, minimal human

intervention etc., to determine if services are within the

ambit of OIDAR

Determining location of service recipient (i.e., whether

in India) – deemed presence of recipient in India

Key concepts to determine liability


25


• Often, the GST registration details provided by

recipients are incorrect

• Most non-resident OIDAR service providers do

not have a robust mechanism to validate GST

registration status

• Conservative approach of treating such

transactions results in cash outflow

• Even a single such transaction would attract

liability to register and pay GST

• Applicability of GST on transactions involving

virtual digital assets (such as crypto currency

and NFTs) and metaverse

• Supplier to identify the state/address of the

customer

• B2C/individual customers often do not

provide correct or complete address

• Services utilized by multiple establishments

of the customer; place of supply will be the

place of residence which is typically not

available with the OIDAR service provider if

a different acting address has been provided

by the customer

• Recent notices issued by the GST officers

seeking information

TransactionsDetermining place of supply

`

Other practical challenges

Key issues under OIDAR model


26


E-invoicing

27


Key features and use of technology

GST in India

Constant evolution on technology front1

Focus has been on moderation of GST rates along with enhanced and real-time compliances2

Extensive use of AI-powered technology by the government for identification of evasion and non-compliance3

Increase in tax

base

Single portal for

GST compliance

Robust credit

tracking

Increased

emphasis on

technology

Reduced indirect

tax cost for

businesses

Focus on tax

evasion/frauds

28


B2B and export transactions

E-invoicing in India

Key features

Purchaser can claim input tax credit only on a valid and

compliant e-invoice

Reporting of e-invoice helps in reduction pf Input Tax

Credit (ITC) reconciliation effort

Auto-drafting of GST returns using transactions reported

for e-invoicing

Reporting of e-invoice ensures transparency of

functioning of the business and reporting

• E-invoicing implemented from 1 October 2020 in a phased manner; current threshold of aggregate annual turnover

exceeding USD 6.7 Million in any of the past four financial years; new threshold of USD 2.7 Million from April 2022

• e-invoicing applicable to invoice, credit note and debit note for domestic B2B and export transactions

• Authentication by a central portal i.e., Invoice Registration Portal (IRP) to render the invoice as a valid invoice

• IRP would generate a unique Invoice Reference Number (IRN), digitally signed e-invoice and a Quick Response (QR)

code for each validated document

• In addition, taxpayers having annual turnover exceeding USD 67 million are required to affix a dynamic QR code on their B2C invoices effective

October 2021

29


Business Intelligence and Fraud Analytics (BIFA) tools developed by the government


Focus areas

2

5

Mitigation strategy

4

• Gap in data furnished by taxpayers – variance

analysis

• Anomaly detection – find outliers

• Mapping of risk score – registration, refund,

and overall risk

• Network detection – entire supply chain and

related party analysis

Objective

1• Detection of tax evasion

• Statistical insights for policymakers

• Revenue assurance

• Making select information available to

taxpayers to evaluate their trade

partners

2

Date source for the solution

3

• Registrations, returns, payments,

refunds

• Enforcement (raid/survey) and audits

• Registrations and filings under other

laws such as income tax

• Aadhaar Numbers

• Robust and reconciled backup of the details

furnished

• Time series analysis

• Periodic health-check to examine variances

• Regular oversight required on entire

business ecosystem

30


Key recent changes by the government


Restriction on provisional

input tax credit

Restriction in submission

of returns if

detailed/summary return

not filed for the preceding

tax period

Additional conditions to

determine eligibility to

input tax credit, based on

spike rules

Display of additional

compliance KPIs for

taxpayers such as

(a) % of tax paid in cash

and

(b) % of system-computed

tax paid

31


Revenue collection trends


322

622

909 874 864

955

1,052 1,050

1,152 1,199

1,131

1,239

1,397

978 928

1,164 1,120

1,170

1,301 1,315 1,298

1,410

1,330

- -

200

400

600

800

1,000

1,200

1,400

1,600

April May June July August September October November December January February March

Gro

ss C

oll

ect

ion

of

GS

TGross GST Collection (INR billion)

2020-21 2021-22

32


With the Indian government putting a lot of emphasis on identification of non-compliant taxpayers, how do you ensure that your input

tax credit is not adversely impacted due to non-compliant vendors?

• Manual internal controls for vendor on-boarding and invoice verification

• Use of a technology solution for Accounts Payable (AP) and input tax credit management

• Don’t know/not applicable

Polling question 3

33


What lies ahead


For the government For the taxpayers What next?

• High visibility of potential areas of

non-compliances and evasion

• Focused and targeted audits based

on data points collected through

BIFA tools

• Efficiency in audits and assessments

• Increase in tax base

• Prepare in advance using:

– Carry government-provided data

points

– Self-analyzed data points

• out thorough vendor assessment

– While on-boarding

– Periodical assessment

• Supply chain automation, especially

on procurement side

• Inclusion of even more taxpayers

under the purview of e-invoicing

• Inclusion of B2C transactions under

e-invoicing

• Possible coverage of excluded

sectors under e-invoicing

• Detailed taxpayer risk matrix and

rating

34


Conclusions

35


• Asia is not homogenous in its approach to the use of technology for indirect tax compliance, both in respect of e-invoicing the

taxation of e-commerce in a localized way, even if the reporting process is broadly consistent

• The rules for e-invoicing and VAT on e-commerce are not fixed, and will continue to develop

– China: Further rollout the FDEIs to more taxpayers, integrate the existing e-invoice (PDF, OFD) to the FDEIs, more qualified

3rd software service providers will be introduced

• Thailand: timeline for further “mandatory” rollout of e-invoicing yet to be announced, possibly more tax incentives provided for

companies to implement e-tax invoicing, ESS is defined as service delivered over the Internet or other electronic network,

“essentially” automated and impossible to ensure in the absence of information technology

• India: OIDAR applies to a specific set of services, for e-invoicing, expect the inclusion of even more taxpayers, the inclusion of B2C

transactions under e-invoicing, the possible coverage of excluded sectors and detailed taxpayer risk matrix and rating contemplated

Conclusions

36


Question and answers


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Richard Mackender

Tax Partner

Deloitte Singapore

[email protected]

Shrenik Shah

Tax Director

Deloitte India

[email protected]

Candy Tang

Tax Partner

Deloitte China

[email protected]

Contact information

Nu To Van

Tax Partner

Deloitte Thailand

[email protected]

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