Before we begin, when did Avalara start India operations? Can you tell us about Avalara and its offerings globally and in India?
Avalara, found in 2004 in Seattle, United States, started their operations in India in 2006. More than 16 years old, when Avalara entered the market, the terms broadband, software-as-a-service, and cloud services were in their very early stages. Avalara has evolved alongside the changes in technology and consumer preferences to provide best-in-class solutions for businesses to manage their expanding tax compliance obligations.
In addition to the continuously changing taxation and reporting requirements levied by the tax authorities, the growth of digital commerce and foreign trade has created a tremendously complex and onerous enforcement burden for companies of all sizes around the world. Avalara's goal is to provide solutions for this problem, enabling businesses to concentrate on their core operations. We provide a leading suite of cloud-based solutions designed to improve accuracy and efficiency by automating the processes of determining taxability, identifying applicable tax rates, determining and collecting taxes, preparing and filing returns, remitting taxes, maintaining tax records, and managing compliance documents.
Transaction tax rules and regulations change frequently and are neither intuitive nor consistent across taxing jurisdictions creating a massively complex compliance challenge. Further complications arise from the thousands of rule changes enacted every year. In addition to being complex, transaction tax determinations often must be performed and communicated to various invoice-generating systems in real time, at the time of the transaction, like e-invoicing in India. Compliance is even more burdensome for businesses required to collect tax on numerous products or services in multiple jurisdictions, which is increasingly common with the rise of ecommerce, globalization, and omnichannel retailing.
Today, many businesses attempt to handle transaction tax compliance processes manually, often in spreadsheets or om-premise software or rely on chartered accountants. Businesses relying on manual processes take risk of miscalculations and incorrect collections, which can result in customer dissatisfaction and financial penalties. Many businesses conduct also use business applications such as accounting, enterprise resource planning (ERP), ecommerce, point of sale (POS), recurring billing, and customer relationship management (CRM) systems. Although these systems may include rudimentary tax capabilities, they are not sufficiently robust or up-to-date to provide accurate tax determinations or compliance for many businesses.
With extensive integrations and tax content, our platform powers a suite of comprehensive, easy-to-use, scalable solutions that enable businesses to address the complexity of transaction tax compliance, process transactions, produce detailed records of transaction tax determinations, and reduce errors, audit exposure, and total transaction tax compliance costs. Businesses that use our solutions can allocate fewer personnel to manage transaction tax compliance and focus their efforts on core business operations.
In India, Avalara helps businesses to automate their entire GST compliance journey which includes e-invoicing, e-way bill, GST return preparation and filing, smart reconciliations and we also help with GST calculations and GST registrations. Avalara is a global leader in tax technology, and we help Indian businesses with tax solutions at every point in their growth path – selling cross border, expanding to new geographies, mergers, and acquisitions and so on. New markets can mean new tax challenges. For companies trading across the world, understanding, and managing foreign tax obligations can be a costly headache. Add to this language barriers and the risks of fines, the burden can seem overwhelming. The tax landscape in the US is one of the most complex in the world. Our platform automates the major steps of tax compliance — all in the cloud, to help your business manage various tax types, across the US. For retail, ecommerce, manufacturing, software, there’s Sales and use tax, communications tax for VoiP, IoT, telecom, cable businesses, lodging tax for short-term rental, hotel, B&B tax management, beverage alcohol regulations and tax rules, fuel and energy excise taxes. On the other hand, there are countries where businesses need to take care of VAT, GST and sales tax rules. Avalara offers VAT Reporting, VAT Expert, VAT Registrations and Returns, VAT fiscal representation, Making Tax Digital (MTD) Cloud and MTD Filer specifically in the UK. Avalara’s AvaTax Cross-Border solution seamlessly calculates customs duties and import taxes (VAT, GST), wherever businesses sells. Avalara’s Item Classification uses AI to automate the process of identifying and mapping tariff codes to your products for shipment to any country and every jurisdiction in the world.
How has the implementation of GST in India gone so far?
The Goods and Services Tax is now entering its fourth year in India, and there has been a lot of activity around this indirect tax over the last three years. Much has been achieved in the last 40 GST Council meetings, from balancing goods between tax slabs, increasing and decreasing the number of tax return forms, to introducing new initiatives such as e-way bills and e-invoicing.
GST got stabilized and streamlined to a great extent over the course of the past few years. However, businesses feel there is a need for further simplification, rationalization of tax rates, reduced frequency in law changes, smoothening of inherent structural issues is required to make GST compliance easier for both, the taxpayer and the government. The rising number of litigations and disputes on GST rates are another concern for taxpayers. There is also the need for a centralized registration system as well as a centralized AAR. Keeping the IT systems updated and ensuring proper implementation of these frequent changes is what makes GST compliance operations for businesses burdensome. Besides, the onus of compliance is on the taxpayers. It is time that they wake up, adapt and use solutions to overcome some of these challenges which can be solved by technology.
The last three years have been a mix of seized as well as missed opportunities under the GST regime. India has implemented stringent measures to keep tax evasion in check. The GST authorities are introducing processes to further the country's Digital India initiative, including the filing of returns via SMS, adjusting accumulated ITC in the electronic cash ledger, e-Office application to automate internal file handling, court hearings through WhatsApp video calls, e-invoicing and many more.
In the last few months, the outbreak of the coronavirus pandemic and consequent nationwide lockdown has been one of the most challenging times for the GST body. But the Centre has risen to the challenge and implemented significant tax relief measures including accelerated refunds, the extension of tax deadlines, waivers of late fee and so on.
India has a long way to go, and GST is still an evolving indirect tax system. Here’s hoping the next few years will bring about a much-needed economic revolution for the country with digital transformation in tax function, e-invoicing, new return system, rate rationalisations, improved compliance procedure and measures to curb tax evasion.
What, according to you, are going to be the trends specific to tax technology industry post COVID?
When it comes to the tax industry, innovation means re-evaluating old processes and challenging tax departments to adopt better systems. From planning to analysis and reporting, everyone is looking for the best up-and-coming technology to improve operational efficiencies. There is already a rise in demand for transparency from the government. Moreover, due to the pandemic, we can also see there is a need for real-time collaboration ability to work remotely. Consequently, we can expect an increase in cloud-based software that allows for real-time collaboration among teams, making it easier to manage various tax-related services.
This is just the beginning of the tax automation journey for India. There is a huge potential for automating tax functions with technology solutions. Soon, several technology trends will drive the growth of tax software in India, including artificial intelligence solutions, real-time data analytics, blockchain. New-age technologies like AI, ML, NLP are expected to have tremendous use. They will increase efficiency, speed, the accuracy of data, and improved audit support.
For tax professionals, the implication is that it is no longer enough to pay taxes. It’s now necessary for those in the industry to understand and adopt the technologies that will enable them to be both efficient and strategic when managing this significant expense. With more use of AI, we will see tax professionals take on a strategic role rather than just performing repetitive manual tasks. Moreover, an intelligent tax automation solution will become a massive asset to tax professionals. Indian businesses tend to have a 'head in the sand' approach while dealing with new tax reform measures, but digital transformation initiatives are invariably pushing tax professionals and tax teams of businesses to cross-skill as 'tax technologists'.
GST is relatively new to India, but there is a visible evolution in its journey so far. India is working toward the implementation of tax reforms that tend to rely on technology solutions including e-way billing, online tax returns, invoicing etc. More such reforms are expected to be implemented in the future, and they are likely to be supported by tax technology. It is clear that GST is the single biggest driver for the adoption of tax technology in India, and its reform measures are carving a path that will rely on tax technology and automation solutions.
Look at the case of e-invoicing where the tax authorities now deal electronically with businesses. GST authorities now have government-regulated invoice authentication systems to obtain transaction-level data. With this data, they can carry out analytics to find more insights, track compliance and detect fraudulent transactions.
The pandemic and subsequent lockdown changed the way businesses fulfilled compliance obligations, including GST returns and GST audits. The inability to manually file returns and conduct audits gave way for the use of cloud-based software to maintain compliance, obviously resulting in a massive improvement in tax compliance efficiency in comparison to on-premises tax solutions. Concerns about operating from different locations using different technology and collaborating are easily ironed out by cloud-based technology, making it the ideal choice for CFOs and accounting managers.
What are your views on e-invoicing for businesses with INR 500 crore turnover and above from October 1, 2020?
After successful implementation in many developed countries globally, e-invoicing has finally made its entry in India. The new compliance reform is expected to bring about a paradigm shift in indirect tax administration in the country. In a nutshell, e-invoicing is the electronic authentication of a tax invoice generated by businesses within their existing invoicing or accounting or billing systems. Once the Invoice Registration Portal or IRP validates an invoice, a unique invoice registration or invoice reference number (IRN) is assigned to each invoice. This number is later used as a means of cross-referencing details of transactions when a taxpayer files GST returns. It also cross-links to the e-way bill portal, facilitating faster movement of goods and fewer pit stops at checkpoints. Although the implementation of e-invoicing was deferred several times, the government authorities finally rolled out e-invoicing under GST on October 1, 2020. They focused on business to business (B2B) transactions of companies having an annual turnover exceeding ₹500 crores and this decision was based on various transaction insights through data analytics run by GSTN. On the first day of implementation of mandatory e-invoicing, a whopping 8.4 lakh e-invoices were raised. This number has rapidly accelerated to a little under 5 crores e-invoices that have been raised by 27,000 taxpayers in October 2020 alone.
Starting January 2021, companies with an annual turnover under ₹500 crores but exceeding ₹100 crores in the previous financial year will also be required to practice e-Invoicing. This purview is highly likely to be extended to all business to business transactions from the next financial year. With phase II of e-invoicing roll out from January 1, 2021, there is an urgency for organisations meeting the new turnover threshold need to acquaint themselves with its mechanism, transition their invoice as well as GST management process and also address any potential bottlenecks arising in the process.
What are some of the manual invoicing issues for enterprises specifically for Indian businesses?
E-invoicing is expected to do a lot more than bringing uniformity and standardisation in the existing invoice management system. With e-invoicing, invoice data can be shared electronically from one software to another, and any machine can easily read the invoice data generated from another machine, in short, machines can easily ‘talk to each other’ and transfer data. There were several functional issues with manual invoicing. For starters, huge amount of time was spent on manual data entry which can give rise to human errors. The payment cycles are unnecessarily high which can run a small business into cash flow or working capital issues, The current system requires a taxpayer to carry multiple copies of an invoice for various purposes, and there are difficulties in sharing the invoice data due to non-standardised machine-to-machine communication. At present, transporters are required to carry valid tax invoices along with the e-way bill with them for inspection at various checkpoints. Also, there is the requirement of delivering a physical invoice to the recipient. Hence, the invoice processing costs are pretty high. Moreover, businesses often ran into reconciliation issues making the turnaround time to avail of the input tax credit high.
With e-invoicing, once a taxpayer electronically authenticates a tax invoice, the transaction data will be auto-populated while filing GST returns and e-way bills, thereby reducing the possibility of manual data entry errors, reducing invoice reconciliation errors or disputes, avoiding duplication of data and eventually making filing of GST returns and generation of e-way bills seamless.
Since its implementation in July 2017, the Goods and Services Tax has been riddled with tax evasion. E-invoicing will allow tax authorities greater oversight over business transactions and will help them keep a check on tax evasion in real-time. Since each tax invoice must be validated, tax administrators will be able to intercept any bogus invoice in real-time, thereby reducing fake invoice generation and input tax credit fraud. Additionally, because the government will be allowing data sharing among various tax enforcement agencies, taxpayers are likely to adhere to compliance requirements with greater efficiency.
How can businesses benefit from e-invoicing?
E-invoicing will significantly reduce manual paperwork in GST operations and allow faster authentication of invoices. Additionally, a digital QR code or Quick Response Code for B2C transactions will reduce the turnaround time for verification of goods at revenue checkpoints thereby reducing losses due to delayed deliveries. Since each GST invoice will be uploaded to the common portal for electronic authentication, details of the invoice will be auto populated while filing GST returns. Some of the most significant benefits of e-invoicing are error-free data, improved efficiency, reduced cases of data reconciliation, faster processing of input tax credit claims, increased transparency, reduced tax and compliance risk and finally, a significant reduction in a business’s carbon footprint.
With a good chunk of tax operations being digitised, tax authorities will have mountains of data at hand and this data can be used to analyse and improve GST practices. Since data will be structured because of the standardised schema, tax authorities will also be able to detect and weed out malpractices, encourage and advocate GST compliance.
How easy or difficult is the implementation of e-invoicing going to be for Indian businesses?
The honeymoon period of e-invoicing is over, which means businesses will face significant disruptions and losses if they do not upgrade their business systems and prepare themselves with e-invoicing requirements right away. The taxpayers who have adjusted themselves over the past three years to the most significant change in indirect taxation regime in India, and probably are still adjusting, are now going through an entirely new learning process to adapt themselves with the new e-invoicing system. However, with the second phase of e-invoicing starting January 1, 2021, this is not the time to play trial and error; instead, companies should navigate these changes with the help of solution providers who have extensive experience in tax technology.
Do you have any recommendations on improving GST in India?
While GST has its fair share of challenges, the authorities need to urgently focus on bringing in measures and reforms that will help make the indirect tax system genuinely beneficial for both the taxpayer and the Government.
Bring in a simpler tax structure - Our overly complicated indirect tax structure often leaves taxpayers confused, which in turn leads to the erroneous filing, litigations and time-consuming refund claims defeating the purpose of maintaining an efficient and evasion free tax system. Too many tax slabs can lead to demands for increase or decrease in taxes causing fluctuations. A simpler tax slab structure limiting commodities to three tax slabs is the need of the hour. Experts have recommended a three-slab structure that will help rationalise this indirect tax system. The Government also needs to correct the inverted duty structure. The GST Council is looking to correct the inverted duty structure under which tax levied on inputs is higher than the tax on finished products leading to a higher amount of refunds which ultimately impact collections. But this has been deferred in the wake of the coronavirus pandemic.
Optimise processes - A major pain point for taxpayers under the GST framework is claiming input tax credit - the process is unnecessarily cumbersome and time-consuming. Moreover, the current GST portal is not capable of handling large amounts of processing tasks all at once. Optimising digital resources will help accelerate the process of claiming input tax credit and increasing the capacity of the portal to handle higher numbers of data processing.
Other pressing reforms - Other reform activities that need urgent attention include clarifying the provisions under anti-profiteering laws so that taxpayers can adhere to the prescribed provisions and not indulge in ethical violations or alternatively, taxpayers don’t take any erroneous calls and unknowingly indulge in unethical acts of profiteering. The Government also needs to close the noose around tax evaders as collections continue to fall month on month due to unethical and illegal tax practices.
What is different about working with tax technology?
Taxes affect almost every one of us every single day – whether we are shopping online or buying coffee at a cafe. But many of us may not realise how burdensome tax compliance is for businesses around the world. Companies spend enormous efforts to register their business, classify the category of their products or services, determine tax rates, calculate tax amount on transactions, file tax returns, manage compliance documents and on top of that stay up to date with the tax laws. Tax calculation alone involves an overwhelming number of different rates, rules, and geographical boundaries. They are dictated by the tax laws of all countries, and they keep changing all the time. Meanwhile, filing taxes is repetitive, cumbersome and must be done in the jurisdictions wherever a company does business. Tax compliance is a complex problem experienced by every business. Technology helps provide a solution, especially with cloud automation, businesses of all sizes and across various industries can stay tax compliant. I find the business of tax technology to be fascinating where technology is being used to solve some of the most complex tax challenges.