The Goods and Services Tax Network (GSTN) has proposed to launch the Invoice Management System (IMS) with effect from October 1, 2024. While the objective of IMS is to streamline the input tax credit (ITC) claim process, but lack of preparation will not only increase the compliance burden but also impede the efficient deployment of capital. Under the new system, the recipient taxpayer will be required to accept or reject every invoice or credit note or keep as pending instead of the current system where businesses can simply claim ITC on their own. Post its rollout, theoretically, IMS will allow registered recipients to match their records with invoices issued by suppliers in their GSTR-1 however, lack of legal backing for the IMS proposal is a major concern, as taxpayers are currently doing self-assessment and claiming ITC in their GST returns.
K. Giri, Director General, Empower India said, “It is prudent to defer the introduction of IMS as it could impact the retail ecosystem during the festive season when they conclude 30-35% of their yearly sales. Also, for the retail ecosystem, a new guideline to be followed in middle of a busy sales period is an unwarranted distraction. The lack of a functional supplier dashboard, which would provide visibility on recipient actions, further complicates the implementation.”
Areas of improvement:
- Stakeholders have identified the need for improvements in the IMS, such as the inclusion of GSTR-1 and GSTR-3B filing status for suppliers, as well as the ability to validate data at the invoice level rather than the rate level.
- The treatment of credit notes when rejected by customers is a major concern as it would add up to the tax liability of the supplier.
- Consultation with small businesses and with the last retailer is critical for success of such an initiative which is all pervasive.
- Allowing credit notes to be kept pending, providing sufficient time for alignment before automatic addition of tax liability, and enabling suppliers to issue debit notes to offset rejected credit notes are some of the recommendations from taxpayers.
- The current proposal lacks clear mechanism for suppliers to dispute any incorrect or mischievous rejection of credit notes by their customers.
As the government continues to refine the IMS, it is crucial that policymakers engage closely with businesses to address these pressing concerns and ensure a smooth transition to the new compliance regime. The companies are already handling a major GST change by way of Input Service distribution becoming mandatory from the next financial year, and this unannounced change further complicates the compliance process. A collaborative approach between the government and the business community is essential to address the complexities of the new Invoice Management System. Business should be allowed at least 12 months to prepare for the implementation of IMS.
