Far from being a burden, Peru’s electronic invoicing mandate has helped medium-size businesses embark on digital transformation while also catalyzing a broadening of the country’s tax base.
The International Monetary Fund (IMF) will release this fall a study detailing the impact mandatory e-invoicing in Peru, which began in 2014 and has since moved to a clearance model. Salma Khalid, an economist in the IMF’s Western Hemisphere Department, and Matthieu Bellon, an economist in the organization’s Fiscal Affairs Department, discussed the forthcoming study in a recent podcast.
Peru widens its tax base with e-invoicing
The economists found that mandatory e-invoicing has begun a widening of Peru’s tax base brought on primarily by small and medium-size businesses that were previously among the least compliant in the country. Firms report 10 percent more transactions on average than before mandatory e-invoicing took hold, the IMF economists found.
Compliance to mandatory e-invoicing has been strong in part because it makes the threat of audit more real to businesses that could largely ignore the possibility of an audit before the mandate began. The cost of auditing through traditional paper methods is prohibitively high for the SUNAT, Peru’s tax authority, so auditing smaller businesses in the era before e-invoicing was rare.
Mexico has, for its part, experienced success with e-invoicing and e-auditing. The process for resolving an audit from beginning to remediation used to take more than three years. After the Mexican tax authority, the SAT, implemented e-invoicing and e-audits, the time required for an audit shrunk to just 33 days.
In the e-invoicing era, auditing is considerably easier and less expensive, meaning businesses have motivation to stay in compliance. The IMF economists found that while the largest and smallest businesses adapted fairly easily to e-invoicing, medium-size companies struggled the most, having to deal with far more transactions than the smallest businesses but lacking the budget larger businesses have to quickly adopt an e-invoicing compliance solution.
E-invoicing in Peru is a positive for government and businesses
Still, e-invoicing has been a positive force in pushing medium-size businesses to pursue digital transformation, which will “make them more competitive” and “allow them to engage more effectively with the new economy,” the economists said in their podcast. They also praised the SUNAT for an effective rollout of the mandate, which took smaller businesses’ concerns into account by giving them more time to comply.
Peru isn’t the only nation in Latin America to experience success with e-invoicing. Industry observer Billentis reported earlier this year that other Latin American countries have used the clearance model to produce measurable results:
- Brazil has seen a $58 billion increase in tax revenue as a result of plugging gaps in invoicing and reporting.
- Chile and Mexico reduced the VAT gap up to 50 percent.
- Colombia found that it could reduce 50 percent of the country’s tax evasion by applying these forms of models.
Billentis also predicts that the clearance model will dominate global e-invoicing, with the market for e-invoicing and business enablement for this technology-driven tax enforcement model growing from nearly $4.8 billion in 2019 to $20 billion by 2025.
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