Beyond compliance, standardised digital invoicing promises automation, richer data, and a step-change in decision-making across government and industry.
The UAE government has always taken the lead in digital transformation compared to the private sector in general. Starting from the eGovernment initiatives in the early 2000s to today, there have been several rapid shifts in the way the government delivers its services over the last couple of decades, culminating in an almost fully digital delivery of government services today.
With the announcement of mandatory electronic invoicing, the UAE government is now taking its digital-savviness to the next level by compelling the private sector to follow suit. The transformation is intended to be rapid.
Whilst we see many countries bringing eInvoicing initiatives in multiple phases spanning over several years, the UAE has provided just two years for the businesses and the government sector to go electronic. From October 2027, there will be no Business-to-Business and Business-to-Government invoices that are not electronic. Period.
“The private sector, on the other hand, is currently at wildly different stages of digital adoption. Businesses that are still heavily reliant on paper are still not uncommon in the country. Given this background, I am quite interested to see how well the private sector will adapt to this new requirement.”
At one end of the spectrum, I anticipate that a bunch of businesses will take this as yet another compliance obligation forced on them by the government, do the bare minimum required to comply, and then go about their business as usual. One of the stated objectives of eInvoicing is to harvest the fruits of going digital at the economy-wide level. Suffice to say, these businesses will not be harvesting any such fruits and what is more, if anything, their manual efforts is likely to increase further in a number of ways including duplicating invoice production and additional manual reconciliations.
At the other end of the spectrum will be those businesses that have a positive attitude towards digitisation and automation. The introduction of eInvoicing provides them the ability to leapfrog their automation in fundamentally two ways.
One, they can use eInvoicing to bring their dealings with all their suppliers and customers into their digitalisation efforts. Ensuring seamless integration of incoming eInvoices with the in-house systems in particular can result in significant savings in manual efforts on the purchases invoice processing front. This is effectively “triple-entry accounting” at play, whereby the creation of an invoice by your supplier in their system can push the related accounting entries into your system. Further, many companies can potentially use the eInvoicing channel to automate ordering, invoice follow up, payment, reconciliation and VAT return preparation processes, saving further manual efforts and time.
Two, the standardised data that inevitably flows through the eInvoicing system will provide businesses abundant, robust, reliable, and readily workable data for better analysis and decision-making.
Another important dimension of this big shift that we cannot ignore is the benefits it brings for the government, particularly for the FTA in relation to VAT management. In VAT, one business’s output VAT is another business’s input VAT. Currently, the FTA does not have an easy way of making sure that the credit that it is allowing for input VAT for a business is actually being accounted as output VAT by the other business because we are currently only required to report total purchases and sales in our VAT returns. Even if we were to provide detailed purchase and sales listing, comparing them across businesses is likely a huge manual task for FTA currently. This carries the risk of the FTA being cash-out on some input VAT claims, either through errors or deliberate misrepresentations by the taxpayers claiming them. Moving into eInvoicing eliminates this risk for the FTA as they will be able to clearly see every single invoice flowing through from the supplier to the customer.
What eInvoicing also provides the UAE government is access to enormous data relating to the economic transactions in the country. Analysing this data can have a profound impact on how the government makes its decisions.
We should expect to see significant shifts in digitisation and decision-making in government and private sectors from the eInvoicing implementation in the next few years. The extent of such impact in the private sector will depend on their tech-savviness and that for me, is the biggest unpredictable variable here.
This opinion piece is authored by Nasheeda CC, Managing Director, Nishe Consulting.
