Legalising electronic communications - electronic billing
Introduction
It is now generally recognised that the Electronic Communications and Transactions Act ("the Act") has introduced the concept of functional equivalence of paper and data messages into South African law. The two crucial provisions in this regard are sections 11(1) and 12 which read as follows:
11. (1) Information is not without legal force and effect merely on the grounds that it is wholly or partly in the form of a data message.
12. A requirement in law that a document or information must be in writing is met if the document or information is
(a) in the form of a data message; and
(b) accessible in a form usable for subsequent reference.
This article focuses on electronic billing and the legal requirements pertaining thereto.
The state of electronic billing in South Africa
Electronic billing, or e-billing, is the process by which invoices and related documents are delivered to recipients electronically, as opposed to traditional postal delivery. This is generally done via e-mail or by allowing customers to access a web page containing the billing data. E-billing by SMS is also growing.
The recent "E-billing in South Africa 2003" survey [1] conducted by internet consultancy World Wide Worx indicated that 76% of businesses and individuals canvassed would prefer to receive their bills via e-mail, with a further 17% expressing a preference for accessing their bills on a web site. A miserly 7% of respondents opted for traditional postal delivery.
It is clear from this survey that there is strong support for e-billing initiatives, and many businesses have identified e-billing as having the potential to significantly impact on turnaround times, customer service and billing costs. It is likely therefore that the Electronic Bill Payment and Presentation (EBPP) industry will experience strong growth over the short to medium term.
Legal requirements relating to electronic billing
While it has been established that there is a demand for e-billing, it is important to note that there are regulations which have been enacted and which lay out the formal requirements for a "legal" electronic bill.
Under the Value-Added Tax Act 1991 there is a requirement that an invoice must be presented as a "document". As seen above it is clear that the doctrine of functional equivalence means that "document" includes a data message and there is accordingly no difficulty with an invoice for the purposes of the VAT Act being in electronic form.
The formalities which must be complied with in order for an electronic invoice to regarded as a legal document are set out in VAT Ruling 28/3/1-25 as amended [2] and other SARS publications[3] . They are primarily designed to facilitate effective auditing of electronic invoices and to ensure that there is conformity between paper and electronic invoices.
There are four basic requirements.
Mandatory information
The first concerns the mandatory information which is required to appear on an e-bill, be it an invoice, credit or debit note. This information is specified in sections 20(4), 21(4)(a) and 21(4)(b) of the VAT Act.
With regards to invoices the following information must appear:
- The name, address and VAT registration number (if applicable) of the biller;
- The name and address of the customer;
- The date;
- A unique identifying customer number;
- The words "tax invoice";
- A description of the goods and services provided;
- The number of units, mass or volume of goods; and
- The amount due including the VAT charged (or a statement that VAT has been excluded and specifying the applicable VAT rate).
Security
The second requirement relates to security. Where an electronic bill is sent by the biller to the customer then the transmission must be encrypted using at the least 128 bit encryption or an "electronic signature". The biller will obviously have to provide the customer with the encryption key and instructions necessary to decode the e-bill.
It is submitted that the reference to an "electronic signature" needs to be reviewed in the light of the distinction drawn between "electronic signatures" and "advanced electronic signatures" in the ECT Act. While an "advanced electronic signature" results from an authentication process and can, for the time being, be equated with what are referred to as digital signatures, an "electronic signature" can simply be data which is intended by a user to serve as a signature. It seems obvious from the context that it is the former and not the latter which is intended.
Both the biller and the customer are required under the VAT Ruling to retain the electronic invoice in readable and encrypted form for a period of five years. This includes retaining the ability to decrypt encrypted data so as to allow SARS auditors to compare the readable form with the encrypted from.
The Ruling also states that where a service provider is utilised the service provider must also retain the data document for a period of five years.
Prior authorisation
The third requirement is that the biller must obtain the prior written authorisation of the customer to the effect that the latter is willing to accept electronic invoices for the purposes of claiming VAT and under the conditions set out in the applicable VAT Ruling. Once again the doctrine of functional equivalence means that this consent may be obtained through an exchange of e-mail or through a click-wrap agreement concluded on a web site.
Original
Lastly, SARS requires that the electronic invoice be treated as the original. Any hard copies made of the original electronic invoice must bear the words "computer generated copy tax invoice" (or "debit note" or "credit note" as applicable).
Conclusion
It is evident that the current regulatory regime applicable to electronic billing should not constitute a hurdle to the growth of the EBPP industry. The requirements set out by SARS are straightforward and, in the most part, no different from those set out in respect of paper-based billing.
ADDENDUM
SARS intends to introduce new invoicing requirements for VAT vendors from April 1 next year. Vendors will be expected to provide their names and addresses on invoices when making a purchase of more than R1 000. The new invoicing laws will improve the audit trail and prevent misuse of tax invoices
- The survey can be obtained through the World Wide Worx web site at http://www.theworx.biz/ebilling02.htm or by contacting the author, Arthur Goldstuck, on 083 326 4345.
- As amended on 1 September 2002; available at http://www.sars.gov.za/Defaultbu.htm(last visited 11 July 2003)
- See the September 2002 issue of VAT News issued by SARS and available at http://www.sars.gov.za/v_a_t/vatnews/SARS%20VAT%20News%2020.pdf (last visited 11 July 2003) and
*See
http://www.acts.co.za/vat/index.htm (last visited 14 July 2003);
the requirements in respect of credit notes and debit notes are
set out in ss21(4)(a) and (b) of the VAT Act which can be found
at the same URL
14 May 2003
This article is intended to provide general guidance and does not constitute professional advice relating to specific instances. Should you wish to place any reliance on the information presented in this article we strongly advise that you consult your legal advisor or the Electronic Law Consultancy - info@e-lawconsultancy.co.za
