GST – Tax Invoice Financing - An Introduction
This one feature of GST - "The
new tax will require firms to upload their invoices every month to a portal
that will match them with those of their suppliers or vendors" -, is enough to
trigger a tectonic shift in :
All the above have a common
aim, to provide access to Sellers or Buyers access to funds at a reasonable
rate of interest. A large number of
participants operate in the market to enable Sellers/Buyers to get the best
deals. The discovery mechanism for capital safety is a mix of market
intelligence and Statement of Accounts.
In
spite of best efforts financing institutions had to face:
§
Defaults
§
Multiple
financing of same inventory
§
Fraudulent
invoices
In the last couple of years, Online
Lending companies too entered the fray. A large group was chasing the same set
of clients.
All this is set to change
with GST introducing the concept of ‘Invoice Matching’.
Quote
The invoice matching
mechanism in the goods and services tax (GST) to be rolled out from July 1 will
help curb fake bill frauds, Finance
Minister Arun Jaitley has said, in a letter to a Congress1 leader.
Jaitley said the model of
invoice matching for eligibility of input tax credit of the recipient has been
adopted in the GST design after much deliberations in the GST Council.
"One of the most
important advantages of adopting this model is for curbing the possible tax
evasion on account of fake invoice frauds," the finance minister said in
response to the concerns raised by Congress Rajya Sabha MP Digvijaya Singh.
Singh, in his letter to
Jaitley, had said multiple tax returns would have to be filed by businesses
leading to compliance burden.
UnQuote
With Invoice Matching being completely
online without any physical paper, the incidence of fraudulent invoices falls
down drastically.
The broad contours of Invoice Financing
under GST is as under::
Prerequisites:
A new Section 25 entity ‘GST Invoice
Financing Corporation of India’, to enable a large number of willing finance
companies to service the needs of Sellers/Buyers.
GSTN registered entities if they are
willing to avail finance, register on GIFCI
All types of Financial Institutions i.e
Scheduled Banks, NBFCs, All India Financial Institutions, Online Lending
Companies, High Net worth Individuals register on GIFCI as finance providers.
The tax invoice uploaded in GSTN flows to GIFCI
(GST Invoice Financing Corporation of India) Portal
The finance providers bid the best price.
EG :
Ø
Seller
– ABC Inc
Ø
Buyer
– XYZ Inc
Ø
Tax
Invoice Value – INR3,25,000/-
Ø
Payment
Terms – 45 days from Invoice Date
Ø
Invoice
Date – 15/07/2017
Ø
Invoice
Number – 12345
Ø
Finance
Provider 1 – FGH Corporation
Ø
Finance
Provider 2 – A1D Corporation
Ø
Finance
Provider 3 – 2EB Corporation
Ø
Finance
Provider 4 – Q54 Corporation
a) ABC Inc uploads the Invoice No 12345 on
GSTN and authorises GSTN to share the Invoice No 12345 details with GIFCI
b) The finance providers evaluate the sellers
background and offer the best quote
Finance
Provider 1 – FGH Corporation Quote – Rs3,10,000
Finance
Provider 2 – A1D Corporation Quote –
Rs3,18,000
Finance
Provider 3 – 2EB Corporation Quote – Rs3,18,500
Finance
Provider 4 – Q54 Corporation Quote –
Rs3,20,000
c)
The
buyer XYZ Inc chooses the best offer (Q54 Corporation Quote – Rs3,20,000) and
accepts it on GIFCI portal digitally, without any further paperwork.
d) Q54 Corporation credits Rs3,20,000 to
Sellers ABC Inc Bank account.
e) On the Invoice due date, Buyer XYZ Inc
remits Rs3,25,000 to the bank account of Q54 Corporation.
f) Once the Invoice is financed, the
information flows to GSTN and no further financing will be possible by another
financier on GIFCI portal
As the market matures, varied products can
be offered on GIFCI portal. Rules to handle defaults will be in place.
The invoice can be for supply of physical
goods or services.
Possible timelines for rollout of GIFCI:--
01) Discussion in GST Council by October 2017
02) Finalisation of the composition of GIFCI by
December 2017
03) Release of Business Rules of GIFCI by March 2018
04) GIFCI Go-Live on July 1st 2018
The GST Model law has defined the time
limit for issue of GST tax invoices, revised bills, debit notes and credit
note.
Following are the due dates for issuing an
invoice to customers:
ü
Supply
of Goods (Normal case)- On or before date of removal/ delivery
ü
Supply
of Goods (Continuous Supply)- On or before date of issue of account statement/
payment
ü
Supply
of Services (General case)- within 30 days of supply of services
ü
Supply
of Services (Banks & NBFCs)- within 45 days of supply of services
Under the present financing mechanisms,
minimal financing is available for ‘receivables’, by Service Providers. In the
last few years, there has a massive jump under Service Sector. The outsourcing
industry is the best example of Service Sector.
The farming community through can avail
financing services through the GIFCI portal. The only condition is that the
farmers have to be registered in GSTN.
Yes,
Voluntary registration under GST in GSTN is possible.
A
business entity may opt itself to get registered voluntarily under GST even if
he is not liable to be registered.
All
the provisions of GST applicable to a registered taxable person will similarly
apply to such a voluntarily registered person also, i.e., he will be treated as
a normal taxable person.
The
drawbacks under composition levy can be overcome through registration under
GST.
Other
Advantages of Registration under GST are as under:
v
Legally
recognized as supplier of goods or services– This increases the confidence
levels of potential customers.
v
Provide
input tax credit to customers– As they can issue taxable invoices, they can
collect GST. Their customers can take input credit on their purchases.
v
Become
more competitive– They will be more competitive than other small business as
buying from them will ensure input credit.
v
Take
input credit– Voluntarily registered persons can take input credit on their own
purchases and input services like legal fees, consultation fees etc.
v
Make
inter-state sales without many restrictions– They can make inter-state sales
without many restrictions (they will be treated as casual taxable persons).
Thus,
nothing stops farmers from being registered under GST. In fact once they are
registered under GST, larger opportunities open up for them.
This article is a work-in-progress and as
and when the procedures are finalised, updates will be published
Legend:
GSTN – Goods and Services Tax Network
GIFCI - GST Invoice Financing Corporation
of India
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