The most significant tax reform in India, the Goods and Services Tax (GST), rolls out on July 1 and has attracted heightened interest from all stakeholders. While this destination based tax is slated to simplify the present tax regime and provide a significant boost to investment and growth of the economy, the industry is gearing up to face the multiple challenges on implementation. Considering the enormity of GST, industry has understood that it extends well beyond tax and will affect every aspect of business and its eco-system. The need of the hour is to avoid business disruption. Here are some of the areas which the industry needs to focus to ensure a seamless transition: First and foremost it is necessary to ensure that the existing registration under the central and state laws are migrated to the GST regime.
In addition, the companies need to identify the fresh registrations they need to take up, like for input services distributor. Besides getting themselves ready, the companies may well encourage their vendors to migrate to the new system in time as their credit availment depends on vendor’s compliance as well. It is also imperative for the companies to look at the classification of all the products they deal with in terms of the new law to determine the correct rate of tax which needs to be applied on their products.
This is important and needs to be addressed on priority as there are multiple GST rates based on the HSN classification. The transition credits is also a key area to be addressed. Along with mapping admissibility of eligible credit (input and capital goods) prior to the date of transition it is also necessary to report accurately existing credit balances in the transitional returns. For transitional inventory not backed by excise invoices, one needs to analyse the options provided by the government and assess the most beneficial option for business.
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The decentralised nature of transactions, the place of supply mandating the change in set patterns of invoicing and the concept of self-supplies are implying that the change in IT systems is the need of the hour. IT systems need to be geared up with all the requisite changes to issue GST compliant invoices from the very first day of GST implementation. To avoid impediment of business operations, the generation of purchase/sale order, system masters, recording of correct taxes, maintaining updated books of accounts, etc. would be vital. Going forward in GST, pricing and margins will have a significant impact.
Adherence to the anti-profiteering provisions due to reduction in tax rates and enhanced credit base is also essential and the pricing should ensure that the benefits on account of reduced rates or enhanced credits are passed on to customers. While the intent of anti-profiteering provisions are not suspect, there are several issues to be addressed here. The manner of computing the extent of profiteering, the level at which it is to be done whether at the company level, product level or SKU level are all unclear and hence the companies are required to take a common-sensical approach with the hope that the government will appreciate the ground realities.
Lastly, the companies need to ensure regular cross functional trainings to educate the key stake holders in different spheres of business in order to keep them abreast with the pace of changing tax regime and seamless transition to GST. There are several other areas which companies may need to focus to ensure compliance but the above main parameters, if addressed, would be a first step towards a smooth transition.
R Muralidharan is a senior director with Deloitte Haskins and Sells LLP. Views expressed are personal.