E-invoicing system to help fight shadow economy

We have entered an era where digitalization has become a key aspect in all spheres of our lives. Businesses, small or big, are heavily relying on digital solutions to streamline procedures and new technology has proved to be really effective in cutting operational costs and ensuring transparency.

Today, we shall discuss e-invoicing and its role in business operations and rooting out corrupt practices. The digital invoices not only reduce operational time but it also do away with the need of printing papers. E-invoicing helps in shortening the payment cycle, improves accounts reconciliation, enhances compliance, limits storing space, prevents errors, limits losses and frauds, promotes fair competition, reduces tax evasion and improves supplier/customer relationship.

E-invoicing also provides great support to micro, small and medium enterprises, since it ensures that MSMEs operate in a fair and competitive business environment that attracts targeted growth. It also supports MSMEs when applying for financing from commercial banks, as it provides accurate financial information about their businesses.

Governments around the world also benefit from e-invoicing, since it supports their efforts against shadow economy and limiting commercial concealment practices. The Kingdom has suffered from commercial concealment for more than seven decades. Commercial concealment, in simple words it is the practice of using somebody else’s name to operate a business, costs the Kingdom between SR300-SR400 billion ($80-$106.7billion) annually.

Last year, the Saudi Commerce Ministry announced a new anti-concealment law to regulate all of the commercial transactions. The law has introduced strict penalties for violators which vary depending on the classification of each concealment act. Penalties include imprisonment for a period not exceeding five years and a fine not exceeding SR5 million ($1.3 million) or one of these two penalties.

In early March of this year, the ministry announced the National Program for Combating Commercial Concealment which aims to encourage individuals who are in breach to come forward and take necessary steps to legalize their position in the market without being subject to any penalties.

Zakat, Tax and Custom Authority, ZATCA, recently launched an electronic invoicing project “FATOORAH,” (Arabic for receipt or invoice). The project aims to digitize the entire documentation process. This will allow the exchange and processing of invoices, credit and debit notes in a structured electronic format between the buyer and the seller.

The project will be rolled-out in two phases. The first phase will cover all taxpayers. It will come into force on Dec.4, 2021. The second phase will be implemented starting January 1, 2023 where the taxpayers will be required to integrate their e-invoicing solutions with ZATCA.

It is expected that the project will have a tangible impact on the national economy, since it will help regulate or eliminate the informal or shadow economy and combat commercial concealment.

Forcing all commercial outlets to use electronic invoicing will not only protect the rights of customers and businesses but will also supports the government’s efforts to advance the Saudi society when it comes to business dealings.

• Talat Zaki Hafiz is an economist and financial analyst. Twitter: @TalatHafiz