The Goods and Service Tax (GST) bill, believed to be a significant reform in the Indian taxation system, is definitely a move closer to Digital India. Since the announcement, the bill has kept corporates and the accounting community busy with trying to figure out its impact. And with news coming in about a tentative mid 2017 roll out for GST, we think it's about time you start learning more about the topic so that you can be ready well in time.
And while the effects of GST on the economy are much touted, its impact on the taxpayer's day-to-day operations will be equally far-reaching. We believe that the initial implementation of GST will be a game changer for organizations in easing operations going forward. The aim should be to get maximum alignment with the current processes and absorb any impact with minimum disruption to the business.
And to do this, there are several areas that need to be thought through before diving in - Understanding the GST's applicability, coverage of the bill, impact on profitability and ways to handle this, among others.
Here is a 4 point action plan to help you take a holistic view of your GST compliance process and plan for the implementation:
1. Assessing the Impact of GST on Business Processes
The GST bill will bring in significant policy level changes when compared to existing tax laws. For instance, GST is applicable on supply; the place of supply determines the incidence of tax, rules and process of claiming Input Tax Credit etc. Entities will therefore need to realign their processes and policies related to pricing, supply chain, cash flow management, legal contracts, business locations etc.
Moreover, with GST, information needs to be submitted at the invoice level and with a monthly frequency. This directly impacts the functioning of your current IT systems that are currently programmed for quarterly or half-yearly frequencies and capture aggregated data
We recommend that you immediately get started on the impact analysis of GST on your business processes. The objective of the exercise should be to understand the gaps between current processes and the expectations under the GST implementation and initiate steps for bridging them. Engaging all the stakeholders such as accountants, indirect tax experts, and internal teams such as core business, finance, procurement, legal and IT is a must, right at the outset, for coming up with an effective strategy.
The GST draft model law and other discussion papers are available here.
2. Getting Registered as GST Taxpayer
Another important aspect in complying with GST is to register the entity as a GST taxpayer.
Some note-worthy points:
1. Existing VAT and service tax payers need not register afresh for GST. Their existing details can be migrated to the GST portal by following due process to enable a single transactional relationship with the government. These entities need to get provisional IDs for the GST portal from their existing registrations with State VAT or Service. This provisional ID can then be used to login to the GST portal and fill the requisite details for GST registration.
2. As GST is a supply location based tax regime, organizations may have to get multiple IDs registered depending on their locations.
3. New registrations are expected to start only after February 1, 2017.
The GST registration portal was launched in November 2016, but given the ambiguity around the roll out dates, the process is yet to pick up steam. But there is renewed action on this front once again, so we suggest that entities get this essential step done and out of the way as soon as possible. The enrolment schedule for various states is available here.
Do note that the GST registration form is a lengthy one with several fields and also requires you to upload business documents. So ensure that you have the relevant documents handy as soft copies, before initiating the registration process as each section needs to be completed in one go for your data to be saved.
Alternatively, you may use our IRIS GST application that allows you to collect and save details at your own pace. Once done, the data will be uploaded onto the GST portal to finish your registration.
3. Updating your ERP / Accounting Systems
The GST subsumes most of the indirect taxes. Once GST gets implemented, the rate of tax will be based on the destination of supply of goods instead of the erstwhile value added tax at various levels along the supply chain. Tax invoices will now need to include the GST registration number (GSTIN) of the counterparty, HSN (Harmonised System of Nomenclature) code for goods or Service Accounting Codes (SAC) for service etc. Also, when filing returns, companies need to provide further details such as eligibility for claiming input tax credit, whether provisional tax is paid, details of original invoice in case revised invoices are issued etc.
The draft format and rules for invoice, payment and refund are available here.
Many of these requirements will require revisiting the existing billing system, the standard chart of accounts and underlying accounting aspects. The ERP/ accounting systems therefore need an upgrade to enable capturing and smooth processing of all the additional information.
4. Meeting the GST compliance requirement
Once the initial migration process is complete, for most entities, compliance with GST will be a monthly affair. While this seems like more than what companies are currently used to (service tax is half-yearly and VAT is quarterly), the reconciliation of supply and purchase data on a monthly basis will improve efficiency when it comes to tax payment and availing of credit, amongst other things.
You can take a look at the draft return formats here to get an idea of the kind of information that you need to submit.
GST transition may look like a humongous exercise, but with the right tools and support, it can be done easily, quickly and with minimum disruption to business. While the GST portal allows you to file returns directly, for companies with many records this might not prove to be easy.
Given the volume of data and frequency of filing, a seamless and automated process for the regular compliance requirement will be necessary. With a proficient GST solution, this can be streamlined to a great extent.
The Good and Services Tax Network (GSTN) has therefore appointed GST Suvidha Providers (GSP) to provide services for the ease and convenience of tax payers. IRIS Business Services Limited is one of only 34 companies selected as a GSP, after a comprehensive and stringent evaluation process.
IRIS has been in the compliance space for 2 decades, having worked with regulators and filing entities alike. On one hand, our solutions power the likes of the Reserve Bank of India and ACRA, Singapore on the regulatory side, and on the other, we support over 700 Indian corporates to meet their MCA filing requirements.
We are now taking this deep expertise and using it to develop IRIS GST, a highly reliable and scalable solution to meet your GST compliance requirements. Please contact us here to register for a demo. In the meanwhile, if you have any queries, please write to me at firstname.lastname@example.org.