It’s no longer controversial to say that real-time VAT control initiatives such as e-invoice clearance or real-time reporting are becoming increasingly popular with governments and tax authorities across the world. Such initiatives, commonly referred to under the umbrella term CTC, or Continuous Transaction Controls, are now largely considered to be the new normal as governments globally continue to quest to tighten controls to reduce fraud and tax evasion. It’s like a domino effect where entire regions are quietly, but quickly and efficiently, adopting regimes that on a conceptual level are very similar.
Latin America is perhaps the best-known example of a region that on a country by country basis has transformed VAT compliance from only allowing paper invoices to instead making paper illegal and e-invoicing mandatory – all for the purpose of tax control. But similar developments are also taking place elsewhere, notably across Central Asia.
Following Kazakhstan’s e-invoicing mandate, Uzbekistan and Kyrgyzstan are also planning to make e-invoicing mandatory for businesses. Both countries started their invoice digitization journey through pilot projects. Unlike Kyrgyzstan’s voluntary-based pilot project, Uzbekistan mandated the project for businesses in different regions of the country.
Kazakhstan is leading the e-invoicing trend in Central Asia having adopted e-invoicing legislation for the first time in as early as 2015. Since then, e-invoicing has broadened and gradually become mandatory. The transition period was completed and fully mandatory on 1 January 2019. Kazakhstan has adopted a clearance regime where taxpayers need to clear e-invoices through a governmental portal. Uzbekistan and Kyrgyzstan are planning to adopt a similar regime.
Uzbekistan has successfully completed the pilot project stage, which took place between October 2018 and February 2019. As a result, the Cabinet of Ministers adopted the “Resolution on measures to improve the use of electronic invoices in the system of mutual settlements”, which will make e-invoicing mandatory in Uzbekistan from 1 January 2020.
In Kyrgyzstan, following the legislative amendments which introduced electronic invoicing in 2018, a pilot project for electronic VAT invoices started on 1 July 2019. The project is expected to be completed by 1 January 2020. The pilot project is based on voluntary adoption, so businesses have discretion whether or not to take part. Through this project, the Kyrgyz government aims to collect feedback and finalize plans for the governmental information system before adopting an e-invoicing system. The pilot project requires electronic signatures of the taxpayers to issue electronic VAT invoices. The Kyrgyzstan State Tax Service has also announced electronic tax reporting requirements which will also need electronic signatures.
The world is waking up to the VAT Gap and organizations of all sizes need to ensure they don’t end up on the wrong side of the Great VAT recovery.