Impact of e-Invoicing on KSA’s Banking System

Binesh K, Strategy, CEO’s Office, SunTec Business Solutions

The General Authority of Zakat and Tax (GAZT) of the Kingdom of Saudi Arabia has proposed to make e-invoicing mandatory from December 4, 2021. This is in line with international best practices and is intended to reduce the shadow economy, increase tax compliance, and promote fair business practices. GAZT has suggested implementation of e-invoicing in two phases. First, businesses should be able to generate and store tax invoices and notes in a structured electronic format with no direct interaction with the tax authority. And second, the taxpayer’s e-invoicing software should be able to integrate with GAZT systems and move to a clearance-based compliance model that can share real-time data with GAZT systems. This regulation is applicable to all persons eligible to pay taxes in KSA as well as third parties who are issuing tax invoice on behalf of taxable residents. Based on the inputs received so far businesses, including banks and financial institutions must be prepared for a whole range of scenarios, including the possibility where approval may be required in real-time for individual invoices and transactions.

e-Invoicing or digital tax invoices does not include scanned or photocopies. These can be shared online and helps eliminate the paper-based invoicing process. e-Invoices must be securely transmitted and stored without compromising the authenticity or integrity of the electronic data. e-Invoicing can enhance transaction efficiency and make them seamless, cost effective and clear. In a system where e-invoicing is the norm, the government will have better and quicker insights into market conditions, be able to improve tax compliance and ensure greater transparency in commercial transactions. From a regulatory perspective, e-invoicing can help detect and reduce the shadow economy, ensure real-time monitoring of movement of goods and services and money. It can drive cost rationalization and reduction across the entire banking supply chain including printing, postal cost, storage, and processing cost. It can help improve banking transparency and financial reporting to clients. It can also give corporate treasurers an early overview of working capital requirements. It also helps in n data-based decision making related to corporate supply chain finance, while providing a tool to improve cash flow and reduce order to cash cycle. The flexibility of e-invoicing models can help automate data feeds into the treasury system which will in turn simplify and accelerate the reconciliation of account information. Once e-invoicing becomes the norm, there will be fewer transaction errors as it ensures faster integrity checks.

Of course, there are concerns about the lack of standardization in invoicing formats as well as security and privacy concerns. But the good news is that e-invoicing service providers are now investing in a common framework for all invoicing solutions to ensure seamless interoperability, format compatibility and maintain data integrity.

As e-invoicing becomes the norm across the world, the banking sector has a distinct edge over newer entrants in the field. A challenging business environment is forcing banking clients to pursue measures that can ensure an efficient working capital ecosystem to support their financial needs. And banks are forced to consider new transaction models to optimize costs. Clients working with these regulations will require seamless and fast flow of billing information between various entities. By leveraging e-invoicing regulations banks can streamline working capital management in the financial supply chain. This will help them optimize costs for both corporate and commercial clients.

Banks can develop e-invoicing systems in-house. But a better option is to partner with a third-party solution provider who can develop, manage and run a comprehensive and future forward e-invoicing solution. Right now, it makes business sense to work with an independent service provider on a revenue sharing model rather than invest in a proprietary platform. Given the short timelines for implementation in KSA, banks need to quickly identify a trusted and capable partner to manage this new system. Banks in KSA must consider partners with experience of working in the banking sector, such as VAT solution providers, who also have an e-invoicing solution that can be integrated seamlessly into their systems. They must also focus on data security, privacy, web access and data encryption to comply with KSA regulations. Banks must evaluate the tax environment and requirements and invest in a solution that can manage tax information and be able to interact seamlessly with regulator systems as well. Any solution deployed by a bank must help them provide open APIs related to authorization, accounts, and transaction data like payments.

Digital transformation of business operations is a reality. e-Invoicing is not just a regulatory requirement but also an effective way to improve the financial supply chain. The modern technology landscape offers banks a significant opportunity to serve customers and markets better. They need to analyze their systems to identify gaps and opportunities and then work with the right solution partners who have the expertise and experience to help them leverage the e-invoicing opportunity. With right solution and alliances, banks can offer collaborative and efficient services which will improve their performance and strengthen their competitive positioning.

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Binesh K

Binesh holds a management degree from IIM-L and has worked in Management Consulting, EdTech & Insurance sectors