Digital and Smart VAT Governance
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One morning at 8:35, Mr. Wang took a taxi to work. While in the taxi, he en-tered some basic information on a mobile app. Within minutes, he finished the annual Individual Income Tax (IIT) filing.
At 9:05, Mr. Wang arrived at his company. After paying the taxi fare, he shared his electronic invoice (e-Invoice) to his mailbox so he could get reim-bursed later. While he was doing this, the order's invoice information was sent to the local revenue authority's invoice management system. Like the transac-tion information of other industries, which is recorded and analyzed, such in-voice information has become a part of the tax distribution map that covers every industry and each region in the city. As part of that map, this invoice in-formation provides data support for macro-economic analysis.
A shift toward smart, digital tax management is underway, enabled by data-driven innovation. There are three key areas of focus for the digital transfor-mation of tax management: online tax payments, real-time e-invoices, and smart tax decision-making.
National tax administration directly affects a country's fiscal revenue, adminis-trative efficiency, and business environment. According to the Chinese Acad-emy of Social Sciences, indirect taxes in China now account for 70% of all the tax collected, and in many countries, VAT, goods and services tax, customs duties, and consumption tax account for more than half of government reve-nue. Research indicates that in developing countries, indirect taxes account for an even larger proportion of government revenue.
One of the most common types of indirect taxes, VAT dates back to the 1950s in France. About 70 years later, VAT accounts for 45% of the French govern-ment's revenue, and more than 165 countries have implemented the VAT sys-tem. As recently as 2019, Angola and Bahrain both incorporated indirect tax. In China, India, and Brazil, the VAT reform is ongoing. Meanwhile, Brexit has massively impacted the UK's VAT system.
VAT management worldwide now faces huge challenges, as well as opportuni-ties, because of the way the global economy — particularly the digital econo-my, represented by e-commerce and international trade — is developing. To address these challenges, many countries are planning to build tax data cen-ters to digitally transform VAT management.
Huawei's digital tax solution consists of three parts: the e-Revenue Authority, e-Invoice, and i-Risk Management. In particular, the e-Invoice solution will be very useful in the digital governance of VAT.
VAT invoices include basic information about the taxpayers of both parties as well as details of the commodity types, prices, quantities, and the tax amount. This information is the basis for tax authorities to collect transaction data for tax supervision.
E-Invoices provide structured invoice data for systems in various areas — such as finance, logistics, and tax — and serve as authentic transaction rec-ords based on digital certificates, electronic signatures, and trusted transmis-sion protocols. This type of invoice greatly increases invoicing efficiency and helps to ensure authenticity. The e-Invoice also provides a real-time transac-tion record collection function, which the revenue authority can use to quickly obtain data it requires. Based on the real-time collected transaction records, the revenue authority can accurately calculate how much tax an enterprise is to pay, without needing to wait for the enterprise's tax return — making the en-tire tax filing process simpler and more efficient.
Innovative e-Invoice supervision increases government revenue while reducing business tax-es.
In Shanghai, for example, about 1.3 million invoices for residential property leases are generated each year. In the past, landlords needed to go to the revenue authority to issue a rental invoice every quarter, with each visit taking 45 minutes on average. In 2018, Shanghai implemented e-Invoices, which re-duced the duration of the entire process to just five minutes. With e-Invoices, a total of 650,000 hours of tax payment time can be saved for taxpayers in Shanghai each year.
The financial departments of some large enterprises process more than 10 mil-lion invoices each year. E-Invoices reduce the billing cost of each invoice to lower than 0.1 yuan (less than US$0.02), which can save tens of millions of yuan for these companies every year.
Huawei works with partners to develop cloud-based e-Invoice services, facili-tating VAT management for tax departments. At the central office, e-Invoice cloud services provide revenue authorities with electronic solutions for the en-tire process of invoice application, issuance, and transfer — implementing real-time collection of transaction information, increasing the efficiency of the tax process, and enhancing the transparency of supervision.
For the taxpayer, the e-Invoice service app provides various convenient ser-vices, such as easy-to-use Quick Response (QR) codes. This also helps tax authorities improve services for taxpayers and evolve to become service-oriented government organizations. To facilitate smart decision-making and analysis, Huawei's digital tax solution provides real-time tax data graphs and collaborative invoice data monitoring — improving the service level and risk control of revenue authorities and providing an engine for precise data analy-sis.
Economic development drives the surge of services, and a massive amount of tax data is generated quickly. Against this backdrop, building a stable e-Invoice management system, which runs smoothly and will help digitally transform VAT management isn't an easy task. To facilitate the system's construction, Huawei, with its strengths in ICT, is playing a role in digital tax reform. Huawei has worked hard to improve underlying technologies — such as storage, cloud computing, disaster recovery, and big data platforms — to strengthen the foundation for the e-Invoice solution and facilitate the digital transformation of VAT management.
There are numerous benefits to using e-Invoices, but they require a large amount of storage in a system. There's an example of this rapid growth in storage needs from a state in 'Country B,' where the number of e-Invoices its revenue authority issued from 2015 to 2018 shot up from 1.1 billion to over 20 billion. This boom increased the billing volume of the invoice management sys-tem to four million invoices per hour, rising to 10 million during peak hours. The huge amount of data this produces can't be processed by conventional high-end storage systems, causing data processing congestion. Meanwhile, collect-ing invoice issuance and recording data now takes just minutes. What's more, collection failures can still occur, which compromises user experience. As such, improving storage performance and ensuring zero delay in invoice re-cording have become the biggest challenges for the continuous reform of e-Invoices. A surge in data volume poses a serious challenge to data analysis. The electronic ledger system, which collects invoice data in real time, and tax analysis based on the massive amount data require the tax system to appro-priately select and allocate storage resources.
With an outstandingly high level of performance, Huawei's OceanStor Dorado can eliminate these issues. Empowered by unique distributed computing power and Artificial Intelligence (AI)-enabled acceleration, this all-flash storage sys-tem provides a processing speed of 21 million Input/output Operations Per Second (IOPS), 40% faster than the run-of-the-mill high-end storage systems. With Huawei's all-flash storage, the state revenue authority of Country B can collect invoices in seconds, boosting the invoice processing efficiency by 1.5 times. When the storage performance is stable, the delay is reduced from more than 10 ms to just 0.5 ms, almost eradicating delay in invoice recording and real-time transaction monitoring. As well as improving performance, Huawei's all-flash storage uses two cabinets instead of the seven cabinets of the original storage system, slashing the Operating Expenditure (OPEX) by 70%.
The e-Invoice system also faces another challenge: preventing service inter-ruption. When a fault occurs in the e-Invoice system, services are interrupted, impacting both the revenue authority and taxpayers and even causing loss. As such, there's an urgent need to both increase system reliability and ensure services can run around-the-clock. Huawei's e-Invoice solution supports the data center design in geo-redundant mode, ensuring the system is highly relia-ble.
Between the active and standby tax data centers, the shared database at the application layer was built based on the highly reliable active-active mechanism of Huawei's HyperMetro storage, achieving high availability of cross-region clusters. Asynchronous replication and periodic synchronization are used be-tween the active and standby data centers and the remote data center to pro-vide remote Disaster Recovery (DR). In this way, even if both the active and standby data centers in the same city are unavailable, the remote DR center ensures that most of data is retained and takes over services to ensure conti-nuity.
As online tax services are continuously expanded, flexible capacity expansion is required during peak hours. However, traditional local servers have limited storage and computing capabilities. New services, combinations, and infor-mation transmission all occupy computing resources. To expand the capacity, an enterprise would have to buy more servers, and it would have to increase its manpower to develop the system.
With its powerful and abundant resource access capabilities, Huawei's cloud computing can replace this dated local server computing, transform data cen-ters into cloud platforms, and reduce system expansion costs. With this tech-nology, the tax system can restructure services and re-design applications on the open and elastic cloud, and services can be easily expanded without a large amount of investment, greatly improving the services and their agility.
With the sharp growth in data, VAT digital governance needs automatic and intelligent data analysis to facilitate decision-making and risk control. This means the tax system must have stable and accurate data analysis capabili-ties. Huawei's e-Invoice solution provides a tax big data analytics platform that's built based on the Data Warehouse Services (DWS), Enterprise Intelli-gent (EI), and Gauss DB to quickly and accurately process, clean, and load invoice, enterprise financial, government organization, Internet, and social me-dia data, which will facilitate smart decision-making in VAT management. The tax data graph shows the tax distribution of each industry and region in real time, helping countries and regions perform macro-economic analysis and make more effective policies based on that analysis. Invoice data can be used to enable associated monitoring and support the dual-dynamic taxpayer man-agement model centered on the taxpayer's credit and risks.
Huawei's e-Invoice solution was developed based on the company's ICT foun-dation, and Huawei brings its digital capabilities to VAT invoices by digitalizing transaction receipts. The simplified e-Invoice solution encourages enterprises to participate in VAT management, and innovative supervision helps build a real-time associated data network — improving smart risk control and imple-menting intelligent VAT data management.
Tax governance will soon undergo more profound changes, driven by the con-tinuous development of digital technologies. Huawei resolves to continue to work with industry partners to innovate tax supervision and risk control, im-prove tax services, tackle complexities of redundant data from the perspective of fundamental technologies, and develop simplified and agile digital services — to deliver tax governance that is digital and, critically, intelligent.
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