Billing server solution for black money

The Government's approach to dealing with black money has traditionally revolved around Policing and Policying (formulation of policies).

Business and financial transactions are subjected to various types of audits and subsequent assessment of tax liabilities by the revenue department. The current practice is of businesses maintaining their books of accounts in-house, after which an independent audit is carried out. Thereafter, these audited accounts become the investigation subject material for the assessment authorities.

AUDIT IS A WASTE

These processes – accounting, auditing and assessment – are a source of wasteful expenditure, if not generation of black money itself, negating the very purpose for which they have been conceived. We spend so much of resources on these processes and still grapple with the utopian idea of a black money-free economy!

But done a little differently, ‘accounting' can replace the need for audits and assessments. For that, it should be taken out from the confines of being an in-house activity, which it is at present. The scope and reach of the accounting system must be extended and made integral, so as to record all transactions and trace their precedents and subsequents. This could be developed into a national data warehouse to store a huge inventory of information, enabling more realistic policymaking. How?

Broadly, there are two routes of accounts manipulation leading to misstatement of profits: Revenues being earned but not booked in accounts or, alternatively, expenses accounted for in books but actually not incurred. All business transactions of purchase and sale are supposed to be accounted through a document or voucher, referred to as invoice/bill.

BILLING SERVER

Now, suppose ‘billing' itself were to cease being an internal accounting process of firms. We could have, instead, a centralised billing server and a compulsory system of bill generation for every sale and purchase transaction, which would be routed through this server. A trader entering into a sale transaction has to merely log into the server using his distinct ID and password and generate a bill recording his sale. The manufacturer from whom the trader sourced the good would, likewise, record his sale, so that the entire chain of movement of the good is captured by the server.

Once implemented, such a mechanism will lead to entire business billings emanating from and residing in the server, which can be made ‘intelligent' enough to ensure security and privacy of data. Indeed, if banking can be safe and confidential on the internet, so can routing transactions through our billing server. Looking a little ahead, there is no reason why all billed transactions cannot logically be banked, too.

That raises the question: Won't people, especially habitual account manipulators, route only those transactions that they want to through this system, in which case, the problem of under/over-invoicing remains.

However, this tendency may not be there once the Goods and Services Tax (GST) system is in place. It will then be in everybody's interest to have a proper and transparent billing system.

Anyone in the chain wanting to make a sale without generating a bill would be disincentivised from doing so, when his own purchase and also the subsequent sales may be recorded by the server. The billing server can become a useful tool for administration of the GST itself, as the input credits claimed by businesses are easily verifiable from the server. One may even stipulate a condition that only bills generated from the server are eligible for input tax credit.

The above system is superior to the TDS (tax deducted at source) mechanism to curb black money generation, since the latter does not cover all transactions and neither is it practical to do so.

It is, however, imperative for every business to record its transaction. And that will become even more so, if there is an incentive of no audit and/or no assessments, provided the accounting is done through the proposed billing server.

NATIONAL ACCOUNTING BOARD

The central billing server described could be the foundation for a National Accounting Board (NAB) – a body that will record all business transactions taking place across all sectors of the economy. It will be some kind of a supra-ERP system, under which there would be thousands of ERP systems. A fully functional NAB would also make tax assessments easier and dispute-free, if it is mandated that only transactions routed through the national billing server will be recognised for tax assessments. Eventually, there will be no need even for tax assessments.

Audit, too, will become redundant, even though the proposed system might initially serve as an auditing tool itself. Genuine businesses would adopt the system immediately, as it would obviate their own accounting and billing problems.

There is another dimension to the utility of a NAB. India has a large number of aspiring entrepreneurs, for whom the starting point is registering their business and having in place an accounting system that is reliable and, more important, accepted by the authorities.

If the NAB offers a facility for registration of businesses and also recording of their transactions, at least genuine tax payers and transparent entrepreneurs would readily buy into it. To enrol everyone into the system, the billing server can have its network of branches/agents or billing kiosks, where you just walk in and get your bill generated, may be on payment of a nominal fee.

Eventually, the NAB will evolve into a universal ERP system – something like another UIDAI – with its scope extending to the whole business and economy of India.

It can also be a source of comprehensive, reliable and intelligent information for economic policymaking. In an era of outsourcing of services, it may be worth looking at ‘outplacement' of accounting as a service facility for businesses and as an effective institution of administration.

(The author is with Klairvoyantz, a Delhi-based financial consultancy.)

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