Mexico: Electronic arm-twisting
20 May 2014
SANTO DOMINGO square in downtown Mexico City is a colonial jewel where old-fashioned scribes write letters for the illiterate. Until a few weeks ago, it was also a place where unscrupulous vendors created fake invoices for tax-dodgers. But Mexico’s pioneering move, as of April 1st, to force the whole country to adopt electronic invoicing has killed the racket stone dead.
“The government has taken our business from us,” mourns the owner of an idle printing press.
Neither tax collection nor technology is an area in which one would expect Latin America to be a global trendsetter. But when it comes to mandatory e-invoicing—that is, forcing buyers and sellers to register invoices with the tax authorities electronically when a transaction takes place—the region is blazing a trail that others, from the European Union to China, are considering following.
About a decade ago, Chile pioneered e-invoices, though they were optional and mainly used between businesses, as in much of Europe. (In English-speaking countries, tax authorities tend to rely on bank records, not invoices, as proof of a transaction.) Brazil, Mexico and Argentina built on the Chilean model, putting the tax authorities centre stage and making e-invoices compulsory for different groups of taxpayers. Much of the region has plans to do likewise in the next few years. Mexico’s new rules go the furthest: it is the only country to impose e-invoicing on individuals as well as firms.
The main motivation for e-invoicing is to stamp out tax evasion, says Fernando Martínez Coss of Mexico’s Tax Administration Service (the SAT), noting that between 2007 and 2009, the SAT lost $3.4 billion, largely due to what it euphemistically calls “apocryphal invoicing”. Brazil had similar motives, as well as wanting to streamline the collection of a tangle of local sales taxes, among other levies, according to Newton Oller, a Brazilian official who is pioneering new forms of invoicing.
Both systems took off largely because the tax authorities chose a single standard early on. They have also imposed digital signatures to ensure authenticity. In most countries, the technology is so quick it registers the invoices as fast as a credit-card transaction. There is a nerdy race to generate the highest volumes (see chart).
“Brazilians admit we’re winning the invoicing but they say they’ll beat us in the World Cup,” Mr Martínez chuckles.
There are many fringe benefits. In Mexico, the SAT estimates that paper invoices used to cost around $12.50 apiece, including printing, delivery, checking and five years of storage. There were more than 150 rules governing their drafting and processing. It took forests of trees to make them and cities of warehouses to store them. Provided businesses have the right technology, e-invoicing is cheaper, easier and better for the environment.
The tax authorities cannot get enough of the new technology. Four Brazilian states have begun forcing some retailers to produce e-invoices, as well as wholesalers. Since April 1st Mexico’s SAT has required 4.2m tiny businesses to report their revenue and costs every two months, using e-invoices. It hopes this will draw them into the formal economy.
That has caused lots of grumbles. Owners of the smallest firms often do not have the computer systems or skills to comply, and fear the tax authorities are out to get them using new technology. Larger firms are vexed that changes are imposed with short notice and the punishments for non-compliance can be similar to those for wilful fraud. Multinationals find too much complexity across the region. The SAT, for instance, has certified 75 companies to provide the invoicing software. Other tax authorities offer their own.
E-invoices can be a boon, though. Companies that offer them can win custom from those who need a verifiable record of their transactions. Hence, on a highway leading out of Mexico City where many lorry drivers stop to eat tacos, small restaurants now offer e-invoices so that customers can claim expenses. And in Santo Domingo square, one printing stall has a new sign boasting of its authorised e-invoicing facilities. The former forgers nearby regard it with loathing.