In a worldwide ranking of e-invoicing expansion, Mexico would top the ratings. In 2015, the Tax Administration Service (SAT) rolled out the obligation to issue CFDI for all taxpayers, which finally led to massification of this technology. But what was the objective?
Although e-invoicing entails benefits such as encouraging innovation, the elimination of the paper in companies or economic cost savings, Mexico’s tax authority opted for this initiative to achieve two great goals: to simplify compliance and, most of all, to fight tax evasion. Now, a report published by the Monterrey Technological and Higher Education Institute concludes that introducing the CFDI has had a significant impact on tax evasion, one of the main economic issues dogging the country.
How does e-invoicing help combat tax delinquency?
Before seeing how the figures evolved with the adoption of CFDI, it is important to explain why a reduction in evasion was expected following the rollout of e-invoicing. In this sense, the experts interviewed in the report point out that the technology makes it difficult to commit this crime, as transaction information is generated in real-time, as well as increasing the likelihood that the tax authority will discover the evader. As the risk of discovery increases, the likelihood of being able to dodge taxes is reduced.
This behaviour explains why the SAT is currently working on an improvement to its tax audits, which are also starting to be held electronically. In fact, last year 4000 inspections of this type were carried out, and the figure is expected to increase over time.
According to the Monterrey Technology Institute’s study, the obligation to issue CFDI, which came into force in 2015, led to growth in Income Tax (ISR) to the tune of 6,6% for legal entities and 21.3% for individuals. This is the most widely collected tax for the SAT, hence the importance of avoiding fraud.
Moreover, another report drafted by the Ministry of Finance and Public Credit along with the University of the Americas Puebla (UDLAP) states that a decrease is also observed in value added tax (IVA) dodging, the second most collected tax. In this case, the rate fell from 31,9% in 2011 to 19,4% in 2015, with the spread of CFDI.
Recommendations to improve e-invoicing
Beyond the progress arising from widespread use of CFDI, the Monterrey Technology Institute study claims that it is still necessary to continue to make headway in this technology. Among other recommendations, it states that consideration should be given to the implementation of a “Catalogue of standardized product accounts to obtain a greater level of information about operations between businesses”. The rollout of a measure such as this would, in the future, allow the total automation of tax returns, which would further reduce the operating costs for businesses.
In addition, the university institution explains that the strategies being implemented in other countries must be taken into account, despite the fact that Mexico today is a point of reference worldwide. Among these international initiatives, the whistle blowing system in Portugal stands out, whereby consumers can easily report, and in exchange for a reward, any premises or businesses that fail to issue them an invoice. Another notable project would be e-factoring, which is currently improving the finances of small and medium-sized enterprises in Chile.
Although there is still a long way to go, e-invoicing continues to evolve in Mexico. Proof of this are the changes that have come into force in 2017, with the arrival of the 3.3 update and the new CFDi add-ons.