How SaaS-Based Invoicing Platforms Mitigate GST Fraud Risks

The spirit of digital transformation in India is gaining significant momentum, particularly among MSMEs. These enterprises contribute 45% of industrial output 40% of exports, and produce over 8,000 high-quality products for domestic and international markets. 

MSMEs have significantly contributed to the country’s economic growth recently, but there is still room for improvement. Enhanced regulatory compliance has made it essential for them to leverage advanced tools and technology. For example, e-invoicing introduced by the GST council initially became mandatory for businesses with a turnover exceeding INR 500 Cr—a threshold that has recently been revised to INR 5 Cr. 

E-invoicing can significantly reduce the risks associated with manual invoice processing, including high time and staffing costs, strained supplier and customer relationships, and the risk of inventory shipment cut-offs.

The government aimed to simplify the tax system and promote digital inclusivity in a phased manner. Initially introduced for large organizations, e-invoicing has become necessary for small businesses. By including MSMEs in the e-invoicing fold, they can become part of the formal economy and contribute substantially to the country’s economy.

Tech Solutions For GST Compliance And MSME Growth

The GST system has streamlined transactions, billing, enhancing compliance and increasing tax revenues. However, challenges remain, including fake invoices, fraudulent registrations, and improper input tax credit claims. To address these problems, advanced technology solutions across value chains are essential. The government has implemented several measures to combat these issues, such as e-invoicing, the e-way bill system, auto-population of key information, and mandatory invoice matching for input tax credit claims.

MSMEs require advanced tools and innovative software solutions to stay compliant with evolving GST norms, achieve sustainable growth, and remain competitive in domestic and international markets. However, financial constraints and the high cost of a skilled workforce make it challenging for them to upgrade to advanced technology. Therefore, MSMEs need an affordable and effective solution for regulatory compliance. The answer lies in embracing SaaS solutions.  

SaaS Technology Combating  Fraud 

Fintechs recognise the above benefits and the government’s aim to improve the GST filing processing and step up to contribute to achieving them. They offer SaaS-based invoicing platforms that replace manual paper invoice processing with streamlined electronic systems, including validation, approval, and simplified global invoice payment and reconciliation. These platforms aim to prevent fraud and errors while ensuring compliance with tax regulations. 

This approach will help to expand the GST base and improve transparency in the taxation system by facilitating better synchronisation of sales data and input tax credit claims. The significance of this approach was highlighted in December 2023, when 4,153 bogus firms suspected of ITC evasion totaling approximately INR 12,036 Cr were detected. 

SaaS-based invoicing platforms can prevent fraud by maintaining data integrity, ensuring that the information remains unchanged from when the supplier creates the invoice to when the buyer makes the payment. These automated invoices offer security and fraud protection through secure delivery, advanced encryption, and legally binding security elements like e signatures.  Governments, financing organizations, service providers, and tax authorities are eager to review the insights within this data. 

From a financial perspective, an e-invoicing platform can facilitate access to short-term unsecured loans by enhancing trust among financiers in identifying legitimate trade transactions. Fintechs use digital data and strategic partnerships to offer low-risk supply chain financing (SCF) options to smaller businesses that traditional lenders often overlook. This support empowers credit-constrained MSMEs and fosters sustainable relationships between financial institutions and these enterprises.

Preparing For Future

The growth of globalisation and digital trading has made tax collection more challenging due to increasing incidents of frauds, but SaaS-based invoicing is a powerful platform for reducing fraud and increasing revenue. This is not just a domestic trend; over 55 countries worldwide have adopted or are considering e-invoicing mandates due to its numerous advantages. MSMEs recognise these benefits and are increasingly transitioning to SaaS-based invoicing platforms for daily business operations and financial processes.

The true potential of SaaS platforms is realised when MSMEs collaborate and share data securely. This collective approach allows them to gain valuable insights, predict trends, and make well-informed decisions. These platforms are crucial for automating invoicing processes for transitioning to a real-time economy, where the swift exchange of critical business information between trading partners is key to growth and success. 

Moreover, utilising digital public infrastructure (DPI) like e-way bills enables MSMEs and consumers to achieve greater value for money while reducing compliance burdens for producers. The e-way bill system’s digital record-keeping simplifies compliance, reduces errors, and ensures accurate transaction records, leading to smoother audits and inspections.

Looking ahead, MSMEs can harness SaaS technology to stay compliant and secure in the evolving tax landscape. By adopting digital solutions, MSMEs can streamline their operations, improve transparency, and effectively adapt to regulatory changes, ensuring ongoing growth and resilience in a dynamic business environment.