Goods and Services Tax – GST – By: – Ravi Kumar Somani – Dated:- 23-1-2017 – India is committed to implement Goods and Service Tax (GST). GST is expected to be implemented from April 2017 or a little later. The tax system is currently in the drafting stages with a few undecided issues holding up the agreement between the states and the Centre. The implementation of GST does not just involve tax reform, it is instead a complete business reform. Therefore, changing the historical ways of doing business calls for larger challenges and increased sense of responsibility as any slip up can also have the business continuity/ survival risks. This article discusses the various transitional aspects that needs to be looked into and the challenges that the businesses face in doing the same. Various transitional challenges are as under: Finalising the GST Transition Model: The first and foremost challenge in the implementation of the GST is to understand what is the right model for your business t
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and the outside professionals clearly dividing the roles and responsibilities of internal team and the external experts. This is more appropriate model for major of the companies who have fairly decent capacities in respect of the executing manpower and knowledge of the taxation system. The capacity and the knowledge can be optimally utilized by partnering with the professionals. Credits Transit, Maximization, documentation, Methodology: Various transitional provisions has been prescribed to deal with transfer of credits in the GST regime. However, transition of credits is going to be a big challenge in the GST regime especially for the following businesses: Where credits in books are not reconciled with returns over a period of time; Book stocks never match with the physical stocks. There is no regular stock taking exercise being conducted; Tax invoices received from vendors not being properly documented, Tax invoices not being obtained at all; Ineligible and improper credits are ava
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suring due compliance of the law. Whether to avail the credit of disputed items could be a vital decision which would require legal confirmation considering the latest case laws as also the time limit of 1 year of the invoice. Further, businesses must have proper documentation, trails in place to establish the claim of the credit at a later date during departmental audits. Business Model Re-structuring: All businesses will undergo a change due to advent of GST. However, the businesses who act and restructure its model as per the requirement of the GST will have a competitive edge over others. Various re-structuring aspects that can be looked into are as under: Whether to change the manufacturing location, principle place of business; Adding locations of supply being closer to customers/ vendors – Making national presence – No state barriers for supply; Shutting down locations, warehousing strategy, Change in supply chain management; Whether floating a new entity for separate business v
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nt supplies – For Ex: Combos with aerated drinks in restaurants, Cinema halls; Merging multiple supplies into a composite supply – For Ex: Vaastu, High Rise Premium to be merged with construction; Determining whether a transaction to be restructured as a Composite supply or as a Mixed supply; Clear breaking up the Price to optimize taxes; Revisiting the Discounts policy – Nature of discount, Cash discount or trade discount, whether linked to invoice or not; Security Deposits in lieu of advances to ease cash flows; Reviewing pricing of all related party vendors to avoid disputes in transaction value – Able to establish arms length; Doing away with the policy of raising Mother Purchase Order s with supplies over a period of time. This is just an illustrative list, there can be many more aspects to transactional restructuring, therefore a business needs to understand its various business transactions, identify various options of restructuring and apply/ implement the same. The entire exer
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al aspects which would be more complex in a practical scenario and there may not be only one view of the same. For instance: Determining the quantum of availing credits based on stock or determining the right pricing for goods/ services in the GST regime considering the anti-profiteering measures. In such cases, businesses shall face challenge in selecting the right approach. Further, the approach adopted may easily be contradicted by the department. Therefore, in such scenarios businesses must have proper documents, evidences in place and if possible get the same duly certified by the competent authorities to establish its claim. Updation of various GST laws for each state in a quick short time and complying with the procedural aspects of each state: In embracing a change it becomes crucial for businesses and professionals to stay connected with the change. Government officials are making the laws, revised laws, rules, procedures, formats at a bullet speed. The thoroughly revised and
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businesses are going to face. The consequences of the same will be faced at the time of departmental audits in the GST regime. Therefore, due care needs to be taken under the guidance of the professionals while dealing with such loosely drafted provisions in the law without clear guidance. Filing of the last return in the current tax regime: Filing of the last return in the current tax regime is like a last chance to make good the old issues and start afresh. Based on the impact assessment, complete sanctity check for the last 1 year must be done and the same must be given effect to in the last returns. Missed credits, doubtful credits, credits reversed to buy peace etc. can now be availed in the last return with proper intimation to the department. Transactions overlapping between the two regimes must be clearly understood and correct legal effect must be given in the old returns. Transactions which can be closed profitably prior to GST could be closed. Once the old returns are filed
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y affair. Many aspects of the GST regime such as matching concept, compliances etc. will be perturb the business in GST regime if the vendors are not organized. Therefore, the challenging task of the vendor evaluation/ assessment and their preparedness for the GST must be assessed well in advance during the transitional phase so that the loose link the chain is not carried along to the GST regime. Vendors who understand can pass on the benefit and ensure that the intermediate supplier is not out of pocket when the customer reduces the prices. Nature and extent upto which ERP system must be tweaked: Needs of the businesses from ERP shall undergo a change in the GST regime, but the crucial decision making factor is to understand the nature and extent of the tweaking to the ERP that is required to be done to atleast start with. It shall be challenging for the businesses to decide whether to totally migrate into the new ERP or to completely overhaul the existing ERP s or to list out the va
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the process of impact analysis are as under: Understand self business first – As-is mapping of the business transactions Perform minimum past one year sanity check Credit Maximization, Review of present credits & compliance Performing various ratio analysis to understand the business and its GST impact Assess detailed impact on business as a whole, business transactions and impact on various business departments. Proactively mitigate the risks of the negative impact. Enhance the positive impact. Implementation not restricted to Finance & Accounts department. Readiness and learning equally required by procurement, production, stores, Sales & Marketing, IT, Admin & HR departments also. Businesses acting early on the GST impact to have edge over competitors. Conclusion: Businesses that do not take care in the initial period would face disputes/ demands after 3-4 years of frustration during audit, as they do not have any reconciliations, evidence to prove compliance in the
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