The Goods and Services Tax (GST), a radical step towards the country’s transformation into a common market, became a reality at the stroke of midnight on July 1, 2017, and its implication on the industry extends well beyond tax. GST affects every part of the business, right from financial reporting and tax accounting to supply chain, technology enablement and contracts redesign.
The need of the hour is to ensure that the GST registration process is complete and the IT, billing and enterprise resource planning (ERPs) are suitably rejigged to fulfil statutory obligations.
The first key action point is to update the customer and vendor masters. This requires collection of information in terms of the GST Identification Number (GSTIN) of suppliers and vendors, determining the Harmonized System of Nomenclature (HSN)/ Service Accounting Codes (SAC) of goods/services to be supplied and their applicable GST rates. Second, all the existing documents, such as tax invoices, credit/debit notes, delivery challan, which are to be issued under the GST regime, need to be modified to capture additional information required under GST.
There is a requirement for issuing certain other documents, such as payment vouchers at the time of making payment to vendors for supplies on which tax is payable under reverse charge, receipt and refund vouchers related to advances and a self-invoice in case of procurement from unregistered dealers. All these documents need to be incorporated in the IT system. Further, all internal reports and periodical MIS reports also need to re-aligned from GST perspective.
Another significant requirement in terms of GST is payment of taxes on advances. The law requires that GST is to be paid in the month in which advance has been received, but the same can’t be adjusted either fully or partly at the end of the month. GST is payable only on the amount of advance which is pending at the month end. In such cases, though the tax is paid on advances, the tax invoice will be issued only when the goods are being supplied. Customers can get the credit only when the goods are received by them. There are separate reporting requirements under GST for taxes paid on advances and their adjustment. IT systems should be able to track down the month-end advances on which GST is to be paid and their adjustments made in subsequent months.
The readiness of internal IT system is one of the key requirements for successfully continuing the business with minimum glitches. Further, eligibility of input tax credits are dependent upon the electronic reconciliation of the sales information uploaded by vendors and purchase information uploaded by the recipient on the GSTIN system. This creates a significant onus to correctly upload the sales and purchase data in order to ensure electronic reconciliation between the information uploaded by vendors and customers. Further, each assessee will be able to download the information uploaded by her/its suppliers and reconcile the same with the information uploaded by them.
For filing the GST returns, assesses will have to access the Goods and Service Tax Network (GSTN) portal and upload the information in requisite formats. GSTN has appointed GST Suvidha Providers (GSPs) who would assist in filing of returns as IT conduits. In order to work with GSPs, there is a requirement of Application Service Providers (ASPs) solution. Some GSPs have developed their own ASP solution to provide an end-to-end solution to assesses.
ASPs will focus on taking taxpayers’ raw data on sales and purchases and converting it into GST returns (in case of multiple registrations, it is a huge task manually). These GST returns, or GSTRs, will then be filed on behalf of the assessee with GSTN via the GSP network.
GSP provides a secured tunnel which feeds in data from ASP (in other words, ASP’s output becomes input for GSP) to the GSTN and generates acknowledgement.
Companies dealing with large number of invoices every month need to automate and upgrade their ERP software to provide data points on a timely basis to cope with the increased number of returns. A good ASP-GSP is required to make the process of reconciliation under the GST regime seamless and hassle-free.
Relooking the manpower requirement to carry out the tax compliances is another area which needs consideration by organisations. Companies have to rethink their organisation structure for GST compliance, as to whether they can undertake all compliances at a central level as much of the work is online or if they still need to work at a decentralised level as in the pre-GST regime.
GST calls for a behavioural, infrastructural and technological change among enterprises so that they can reap the potential gains of its implementation. In this context, information technology/ERP software are going to play a pivotal role.