With GST ringing in the government has been true to its promise of introducing GST on July 1. With the promise complete it is now up to assessees to reap the benefits. Though there may still be fears in the business community—big and small alike. Nonetheless, assessees will now need to comply with the new law. But to extract the maximum benefit in this new tax regime the tax payers should stress on the following aspects.
IT system developments (which are still in process)
IT system development, especially for tax payers with a variety of transactions and high volumes, is critical. Where the development process is still in progress, apt manual processes should be identified to ensure sales continuity. With ERP/financial software developers releasing patches, IT teams should work on relevant customisations. Compliances in GST could be ERP driven and assessees should be in a position to prepare returns with minimal human intervention.
Transitional input tax credits
Substantial benefit may be drawn from capturing input tax credit of the present regime which would be transitioned to GST. Understanding of the transition provisions and capturing the right input tax credits is crucial. It is important for any entity, irrespective of turnover, to extract this value. With a 90-day window provided there is ample time to determine the correct input tax credit which needs to be passed on into GST. Transitional input tax credits would also depend upon filing of the final returns of the present Indirect tax regime. It should be ensured that the returns are filed in time and the closing balance of input credit is captured correctly. In addition, all applicable compliances under present Indirect tax laws should be completed within prescribed time lines.
While transition input tax credits and inherent benefits of GST would lower costs, higher GST rates for products may play spoilsport in some cases. Determination of pricing and being competitive would be critical for all enterprises especially for price sensitive products. Even medium and small enterprises should work on pricing patterns to remain effective. Tax payers based in excise-free zones (like Himachal Pradesh, Uttarakhand, J&K and Sikkim), who were passing on the lower excise rate benefit to consumers would need to evaluate the pricing pattern and determine the impact of continuation of incentives under GST.
Working capital requirements
With increase in tax rates on ‘sale’ of goods and services, traders and service providers would need to cough up more cash to pay taxes at month end. Smaller businesses with limited liquidity may feel the pinch of this increase in output taxes. Though there should be a corresponding increase in credits, assessees should determine the immediate working capital impact and arrange for the same.
With multiple indirect tax laws being subsumed, many assessees would see ‘tax cost’ reductions—removal of those indirect taxes which were earlier not creditable. Some such reductions would be visible and determinable. For entities which control the vendors’ procurement pattern, it is imperative to renegotiate the base purchase prices to lower costs. Though this may not be as easy in the case of small and micro-units, where majority procurements may even be from vendors not registered in GST. Assessees may also look at weeding out those vendors which may not be GST compliant leading to credit blockage.
Supply chain rework
GST on interstate goods procurements would now be creditable which could open new avenues for all assessees from a supply chain perspective. Assessees may now explore possibility of procuring better raw materials without incurring central sales tax as cost. On the flip side, traders can now sell goods interstate without the need to maintain warehouses in multiple states. This should further reduce costs. Assessees should evaluate benefits of such supply chain restructuring.
Evaluating the right warehousing service providers who may assist on such initiatives is also important. Compliance—having the right application service provider (ASP) The end game of any tax law is compliance. And compliances in GST are set become more tedious with line-level reporting. This is compulsory for all assessees. While some small and micro-units may have the benefit of filing returns online on the GST portal itself, others would need to go through an ASP and GSP.
Selecting the right compliance partner would be necessary to ensure correct compliances and data security. Even refund filing, which would now be filed online, would be easier with the right compliance partner who could ensure correct and timely compliances. Personnel trainings and recruitment Tax teams and finance teams should be adequately aware of the new tax law. Having a team which is aware of relevant provisions would greatly help in achieving the abovementioned objectives. In most cases teams may temporarily need additional members.
(With contribution from Karan Pandit, senior tax professional, EY)