Can taxpayers in Southeast Asia shift toward e-invoicing fast enough?

As more countries adopt e-invoicing, taxpayers will need to understand its impact and align teams across functions that handle invoicing.

In brief

• More Southeast Asian tax administrations are adopting e-invoicing to improve tax compliance effectiveness and efficiency.
• The tax function should spearhead development of guidelines for invoice generation, tax compliance and other key areas.
• Taxpayers have an opportunity to digitize, simplify and manage tax reporting processes for e-invoicing as part of their digital transformation journey.

The digital revolution has allowed tax administrations in Southeast Asia to reimagine the future of tax collection. As compliance by design becomes the focus, e-invoicing has emerged as an essential part of the tax administration toolkit.

Eliminating the need for paper invoices, e-invoicing allows businesses to create and store machine-readable, digitized versions of invoices for billing and payment. Through a designated e-invoicing portal, invoices can be sent electronically to trading partners using a structured data format, such as Extensible Markup Language, JavaScript Object Notation, Universal Business Language, electronic data interchange or Pan-European Public Procurement Online.

Across Southeast Asia, a growing number of tax administrations are mandating the adoption of e-invoicing as they progress to the next phase of their digital transformation journey.

While Indonesia and Vietnam have implemented e-invoicing, the Philippines will introduce e-invoicing to its 100 largest taxpayers in a pilot phase in 2023 before implementing the same for other large taxpayers. Similarly, Malaysia will mandate e-invoicing for the largest taxpayers with an annual revenue of at least RM100m from June 2024 before expanding it to those with lower revenue thresholds. Elsewhere, e-invoicing remains voluntary in Singapore and Thailand for now.

The differing approaches toward e-invoicing implementation and varying stages of progress reflect the unique experiences and challenges of each tax administration in Southeast Asia. For example, the Bureau of Internal Revenue (BIR) in the Philippines finally overcame legal hurdles after the enactment of the Tax Reform for Acceleration and Inclusion Act in 2018 granted it the mandate to develop the Electronic Invoicing/Receipting System e-filing platform.

Meanwhile, Malaysia’s e-invoicing efforts are part of larger plans by the Inland Revenue Board of Malaysia (IRBM) to digitize tax administration. 

In Indonesia, the starting point for e-invoicing appears to be a conversion of the conventional value-added tax (VAT) invoice to an electronically readable format, allowing better tracking and matching of VAT invoices by the tax administrator.

Aims of digital tax administration

There are typically three key goals of digital tax administration.

The first is to drive efficiencies and cost savings. By digitalizing end-to-end-compliance processes, huge volumes of paper can be removed from the system. That results in the following:

• Less time is taken to locate the right information.
• Less physical space is needed to store taxpayer records.
• Taxpayer data can be easily compared year on year.

Second, once information is digitized, revenue authorities can gain far better insights from the resulting data using new technologies, such as advance analytics, robotic process automation, and machine learning. What was before a mass of inadequate information now becomes a mine of value. This is of particular importance to revenue authorities, which wish to tackle not only determined tax avoidance but also the greater economic challenge of tax fraud and tax evasion. That, in turn, is why e-invoicing and the digitalization of VAT or goods and services taxes have so often spearheaded many countries’ efforts.

Third — and perhaps of greatest importance for taxpayers — is that the digitization of invoices allows revenue authorities to move closer to real-time working, shortening the processing of tax returns, tax assessments and the timescale for which taxes remain under dispute. That is positive — anything that can increase tax certainty and reduce the quantum of funds that remain tied up in tax provisions will be good for business.

Valuable insights from e-invoicing for tax administrations

E-invoicing allows tax administrations to collect rich and robust data on business activities in real time. This provides a transparent and traceable trail of invoice data, which facilitates the detection of discrepancies and mitigates potential tax fraud. In essence, with a full complement of data from all players in the economy, a revenue authority should — in theory — be able to look across entire value chains within hours of a month-end or quarter close.

Moreover, the integration of digital invoices directly into government-mandated platforms reduces the risk of errors, strengthens tax audit capabilities and facilitates more efficient tax administration.

Ultimately, this helps tax administrations to tackle tax leakage and improve tax compliance, allowing them to collect their fair share of taxes.

1.    The need to reconcile transactional data with tax accounts

E-invoicing requires taxpayers to submit transactional data to tax administrations. To safeguard the accuracy and integrity of the e-invoicing data, taxpayers will need to reconcile the transactional data within their enterprise resource planning (ERP) systems with the information submitted to the tax administration via the e-invoicing portal.

They will need to check information, such as invoice numbers, transaction descriptions, dates, customer or vendor information and indirect tax details, to verify that there are no discrepancies or errors in the submitted data. The use of automated reconciliation software can streamline this process and help resolve any discrepancies. 

2.    Tax administration database as the “single source of truth”

E-invoicing elevates the tax administration’s database as the single source of truth. Acting as the central repository of tax data, the tax administration’s database will now be considered to hold the most valid, reliable and accurate version of that data.

Therefore, the information in taxpayers’ ERP systems needs to match what’s in the tax administration’s database. Should taxpayers subsequently discover errors in the submitted data, they will need to rectify and reconcile those discrepancies. This may include correcting the information in both the internal ERP system and the tax administration’s database, deleting duplicate invoices or canceling the original invoices and uploading the corrected versions.