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‘GST Could Offer A Simpler Taxation Even With Multiple Rate Slabs’

Saying GST compliance is difficult because of multiple rates slabs oversimplifies the problem. Most software and billing systems can handle multiple rates

With the press of a button at midnight in Parliament’s Central Hall, India switched to GST. However, due to complexity and variations of this new tax code, many enterprises are finding it difficult to become GST ready. Pavan Peechara, Director at Udyog Software, speaks about the relevance of ASPs, multiple tax slabs, impact of GST on MSMEs and more:

Question 1: What kind of efforts are enterprises making to keep up with the new GST regime?

Enterprises are getting ready for the GST the best they can. What they are doing is they are making the changes to their business process to accommodate GST and putting in long hours to keep up with the new regime. This means updating the tax rates associated with items they sell, reviewing how an invoice is issued and printed, and making sure that they have a way to extract and store the data required for compliance. A simple example is that, for every sale, a business has to make it be able to classify the transaction as B2B or B2C. These types of business processes will be evaluated and re-evaluated as businesses move through the next several months.

There is going to be a real test for everyone in the month of September when several returns have to be filed on an almost continuous basis. Enterprises will need to file, reconcile and complete GSTR-1, 2 and 3 twice and file GSTR-3B one more time.

Q. So, are the enterprises GST ready?

Many enterprises are still to decide on a “tax technology” solution with a hope that their ERP or financial system can do the GST compliance. Solutions which can keep up with changing rates, returns and rules will be favourable to those which the business has to keep updating. There is some kind of rule, rate or return change every week and sometimes changes are announced but dates are delayed.

Also, many tax technology solutions or patches from existing software might not pass through the GST compliance and reconciliation in coming months or even in weeks forcing people to look for “working” GSP ASP solutions. GST tax determination, compliance, filing and reconciliation is going to be like a continuous drill for coming months and even years.

Q. According to you ‘what worked and what failed’ during July-August 2017

Indirect tax runs on a process because it is a daily occurrence – every business tries to reduce and mitigate change for indirect taxes. So, the processes which have been created for indirect tax have to be reviewed to see “what worked and what failed”. In a normal compliance cycle, you would have 10 days to make changes but now that is not possible. So right now, businesses will be looking at a good enough approach and not considering all of the risks and mitigations they would normally take.

Another piece which has to be considered is the time to file the return. The GSTN for the GSTR-3B returns was not available for filing at certain times. Solutions which help businesses deal with these outages will be important.

Q. At a time, when businesses are going digital, has the relevance of ASPs aggravated?

There is a requirement to make the data digital for compliance and so it is preferable to start the data in a digital world. There is not an immediate need for an ERP to do this; just a billing software can do it.

ASPs which offer the ability to transform data can make this a much less painless process. The reason for the translation is because the GST returns are summaries over time as opposed to invoices which are a snapshot in time.

An ASP which can make the translation easier – saves you time and money. Once the data is in the ASP, it gives you a place to work. Let’s say that you have multiple business units which have different systems – the ASP gives you a place to consolidate everything. ASPs will let you validate, review and share data in ways that are not possible through a portal or spreadsheets.

When it comes to GSTR-2 and GSTR-3 an ASP is a must. GSTR-2 is all about reconciling the data which was in GSTR-1. In a business with multiple locations or units, each business would have to address the reconciliation separately. This can lead to different approaches, timelines, and treatments which can impact compliance. A manual entry into the portal will result in errors and mistakes which will cause delays and penalties.

Therefore, an ASP can provide a way for an entire enterprise rather than a single GSTIN to be consolidated so you can handle the filing process for multiple filers simultaneously. As the data is consolidated it can be used to generate reports and help a tax manager, director or CFO see where their GST process lies and if they need to redeploy resources. An ASP is a strategic decision which can reduce the cost of filing and be remitting taxes through increased efficiency and lower error rates.

Q. Has many tax slabs made GST compliance difficult?

GST could offer a simpler taxation structure even with multiple rate slabs. Saying GST compliance is difficult because of multiple rates slabs oversimplifies the problem. Most software and billing systems can handle multiple rates. In fact, they have had to handle multiple rates for years with differences in rates across India. For example, the standard rate for VAT different between each state with Gujarat at 15 per cent, Maharashtra at 12.5 per cent and Uttar Pradesh at 14.5 per cent.

Ideally, a single rate regime would have been best but that does not reflect political realities. Many other countries like France, Italy, Brazil and even the United Kingdom have multiple rates. GST could offer a simpler taxation structure even with multiple rate slabs, but the continuance of some the practices of the old regime, is an issue.

Compliance is difficult because for a single item there can be multiple rates depending on characteristics of the item. These characteristics are descriptive and we are not providing specific codes or labels which can be stored, shared and tracked effectively.

An example is this – a printer has two entries in the rate schedule – one for 18 per cent and one for 28 per cent. The distinction between the entries is the higher rated item can do two functions, for example, print and scan. Now the code listed in the rate table is the same between both 8443.

Q. What has been the impact of GST on MSMEs ?

It’s going to be positive to SMEs in medium to long, as they will be able to grow their business using the digitized transaction analytics, while immediate benefits include getting input tax credit for “rental income paid” which will be a substantial tax credit from day 1 and will offset many other challenges and minor investments needed by SMEs to automate their business

CA community across the country also aligned to this transformation with many agencies and association of CAs and chambers of commerce have done multiple events and seminars to create awareness and to help more than 1 crores SMEs who will be using GST system by this year end

One caution for SMEs is that they should manage their “trade schemes” like 'buy one get one free' or other promotional offers which will have different “tax treatment” if not documented correctly. Hence taking CA and legal for better clarity is needed. SMEs are also supported by slew of easy to use tax technology solutions available in the market

Also, dealing with B2B through credit notes and debit notes and doing B2C business through receipt voucher and refund voucher entries are critical in GST compliance and taking all the benefits it offer in longer term in integrating business across country by reducing cost of doing business

How can electronic invoicing better the exchange of business data between parties without using paper?

One constant for businesses in India is dealing with paper. When you make a business purchase, you are issued a tax invoice which you keep for documentation purposes. When goods are transported there are copies of the invoice which the supplier has, the recipient and even the transporter. All this paper is stored, tracked and in the case of an audit retrieved and presented. It costs time and money to maintain this process; while GST has not eliminated the paper invoices it has made a significant change.

Before thinking about the GST, the tangible value of paper which has stamp or notation form the government is king in India. Every shop you go to there will be a business license proudly posted somewhere or there will be tax certificates on paper stored in a cabinet. However, that isn’t always the case, in fact, the death of paper has already started. In West Bengal, the VAT certificates were “dematerialized” which is a fancy way of saying that they have become electronic.

GST is an opportunity to move into electronic invoicing which is the practice of issuing documents through electronic methods. GST does mandate electronic invoices; it requires paper invoices continue to be generated. The ground work is being laid for the eventual elimination of the paper invoices. The first change is the new GST invoices do not have to look a certain way instead they need to have a minimum quantum of information to be a valid tax invoice. Second, the invoices can be digitally signed. Third, all the invoices with serial numbers and relevant pieces of data will go into the GSTN. It is important to note the government does not want a supplier’s invoices – it just wants the invoice numbers.

While the interaction between the supplier and the government is electronic there is still a paper touchpoint between the supplier, transporter, and recipient. The chance to move to an electronic invoicing system can save everyone time and money in a supply chain and is worth the investment.

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