Inland Revenue has come up with some proposals for improving the GST system, in particular where it concerns tax invoices.
Why are reforms needed
While tax invoices remain a useful tool both for Inland Revenue and businesses to ensure GST compliance and monitor refund claims, the standard requirements for invoices have not changed very much since 1986. Vast changes in business practices and the use of technology since then have given rise to a risk either of non-compliance with the legislation or excessive compliance costs on businesses, suggesting that a review of these requirements is needed.
As well as modern business practices, international developments make it timely to review GST invoicing requirements.
In other jurisdictions there is emerging interest in GST adopting some form of split-payment system where a vendor or an intermediary involved in an electronic payment can split the GST off from any payment to the vendor and remit the amount to the revenue authority.
The New Zealand and Australian governments are also working together to facilitate electronic invoicing (e-invoicing). These changes are intended to facilitate Trans-Tasman trade for small and medium businesses with an ABN or NZBN by allowing data exchange to be used in place of traditional invoices.
Current invoice requirements
As an integrity measure, the GST Act denies an input tax credit claim unless the supplier has provided the registered person making the claim with a tax invoice and the tax invoice is held by the registered person at the time of making the relevant GST return.
To be a tax invoice, the GST Act requires that documents with consideration exceeding $1,000 must contain:
- the words “tax invoice” in a prominent place;
- the name and registration number of the supplier;
- the name and address of the recipient of the supply;
- the date of issue;
- a description of the goods and services supplied;
- the quantity or volume of the goods and services being supplied; and
- the amount of the tax and the pre-tax consideration or the tax-inclusive amount with a statement that it includes GST
Invoices are not required if the consideration is under $50, and a slightly simplified form of tax invoice can be used where the consideration is between $50 and $1,000.
Options for simplification
It is proposed that a wider range of ordinary business-to-business information, predominantly electronic information, should be able to be used to support GST output tax and input tax. To achieve this, IRD are suggesting a number of changes to the GST Act requirements for tax invoices.
- The requirement to provide details of the quantity and volume of goods and services supplied could be removed. The quantity and volume of goods and services would normally be found in commercial documents and so it seems unnecessary to have this as a set requirement in the GST legislation.
- With invoices now being largely electronically generated it would make sense to also remove the requirement that a “copied” invoice be marked as “copy only” since the requirement makes little sense in the electronic environment.
- With e-invoicing, businesses will no longer need PDF or paper invoices that have to be scanned, posted or emailed, and entered manually. Instead, the suppliers’ and buyers’ finance systems will “speak” directly to each other, enabling faster delivery, processing and payment of invoices, helping save time and money.
- With the tax system becoming increasingly automated, it seems unnecessary for taxpayers to obtain Inland Revenue approval to use buyer-created tax invoices.
- It is proposed that shared invoices should be able to be used in a wider range of circumstances.
- Offence penalties can arise if the supplier does not provide a recipient with a tax invoice within 28 days of a request to do so or if the supplier issues more than one tax invoice in relation to the same supply.
- Deeming the issuing of more than one invoice to be an offence, in the same way as the “copy only” requirement, seems outdated for electronic transactions.