Recently, the Indian Revenue Service Association wrote a letter to the prime minister, outlining some of their concerns on GST implementation.
One of the things they pointed out was that administrative structure in the state government remains “highly control oriented with emphasis on seizure or attachment of goods and nakas on tolls”.
Such an approach, they argued, may not be prudent for India’s growth in the services sector that has always faced a very open and pro-trade tax administration.
Amongst others, the inference here is that state government officials will need to reinvent themselves, as there would hardly be any physical interface between tax authorities and taxpayers. The letter further elaborates on various human-resources (HR) issues that need to be taken into account for a successful GST implementation. We often miss the HR-side of the issues around GST, with discussions centred on the transformational impact of GST on economy, demand, pricing, supply-chain and so on. There is indeed a human side—involving government officials (both Centre and states), companies as well as their tax advisors and lawyers—of the GST impact to consider as well.
Perhaps, the change would be the starkest for the government officials. First and foremost, due to division of administrative powers between Centre and state, 50% of businesses with an annual turnover of `1.5 crore or more, would be controlled by only one set of authorities (Centre or State). Today, a company having three factories in one state might fall under the jurisdiction of three different set of excise officers. Under GST, that particular company may be administered by state authorities, and the excise officers may not have any control over it at all. This will need a mindset of ‘giving up’ which the tax authorities are generally not known for. Also, there will not be any factory-based excise duty under GST and, along with that, concepts such as manufacture, MRP of products (for computation of excise duty for most consumer items), clearance of goods from factory (as excise duty has to be paid upon clearance), approval for sending/receiving the goods for processing/repair, etc, will no longer be relevant. Instead, the officials will have to learn newer concepts such as ‘supply’ of goods, which has hitherto been alien to the authorities.
Past laws, clarifications, notifications and judicial rulings will have no or little relevance in most cases.
For state government officials, the concept of state-level tax on services is completely new as they are only used to dealing with tax on sale of goods. In which state services are getting ‘consumed’ is a complex subject and the draft GST laws do not provide adequate guidance on the subject as yet. While several training sessions have been organised for state officials over the last few months, the challenge would be to unlearn the past and embrace the new paradigm. Just like excise duty, today, state VAT also requires extensive interface between businesses and officials.
Physical verification of premises for VAT registration, issuance of various statutory forms (Form C, F, road permits and so on) and tracking their utilisation, year-end mandatory assessments, etc, occupy most of the time of state VAT officials. Under GST, most of these would be significantly reduced, if not eliminated completely. Instead, a small percentage of taxpayers would be selected for detailed audit and most of the time of these officials would be spent on enforcement, intelligence and data analytics to catch the potential tax evaders. Not only does it require change in orientation, officials need to be much more ‘tech savvy’ than they are at present. It is not uncommon to see most of the junior and mid-level tax officials working on physical, file-based system and personal email IDs for correspondence with businesses. Under GST, where all the filings and correspondence would be electronic through GSTN system, aspects such as data security, use of modern tools and technology would become very important.
‘Change management’ would be equally important for corporates and businesses. Different ‘excise managers’ in different factories may not be needed any more. As all the states would have a common GST law, and most of the interactions with tax authorities would be electronic, companies will no longer need to rely on local tax consultants for most compliances. GST offers them a unique opportunity to centralise their compliance function. Given the volume of returns that are to be filed in each state (at least every three months) and reconciliation requirements with vendor invoices, it would be extremely difficult to have manual compliance. Therefore, most of the companies would want to automate them, to the extent possible. Use of technology, therefore, become essential for corporates as well and they will need extensive trainings for the finance/ tax teams. Many companies are also exploring the option of outsourcing their entire tax compliance function or creating their own ‘centre of excellence’ to ensure that their compliances are streamlined and cost-efficient.
Also, GST could, in many cases, change the way contracts with vendors/ customers are entered into. This will need alignment of legal and business (purchase/ sales) teams as well. GST will necessitate extensive vendor and customer education in the initial few months of implementation which, in turn, would mean that companies would also need to roll out training plans for their internal stakeholders.
Last but not the least, tax advisors—consultants, accountants and lawyers—would all need to reinvent themselves. They need to interpret the new laws afresh and advise their clients, possibly relying on international concepts and rulings.
GST, therefore, warrants us to learn many new things, but more importantly, unlearn much more. For once, there are no teachers, only students!