After a decade of political negotiation, the goods and services tax (GST) is ready for implementation from 1 July. Touted as the single-biggest reform by the Modi government, the industry has lauded the move. Still, some challenges remain for the smooth transition of the new reform.
“All the rules are yet to be notified. Only after the rules are finalised can the IT systems from GSTN be ready,” says Tejas Goenka, Executive Director at Tally Solutions. “The GST Suvidha Providers would be ready only after that.” Dismissing the claim, GSTN (GST Network) says that the system is foolproof and is prepared for the rollout.
The second challenge is the lack of preparedness among small businesses. “Nearly 60 per cent of small businesses in the country are devoid of digital technology. At a time when everything will be routed through digital technology under GST, how would the traders cope with it,” questions Confederation of All India Traders (CAIT) Secretary General Praveen Khandelwal.
The argument of the government is that enough time was given to them in advance. “No one has any business not to be ready. Now the readiness will be determined by 5 September, when the traders have to file the first return. If the trader will still not be ready, probably he doesn’t want to be ready,” Cabinet secretary P.K. Sinha says.
Another question is the tedious paperwork and compliance.“If someone does business from offices in more than one state, the number of returns will go up accordingly. A business with offices in three states will have to file 111 tax returns in a year,” points out K. Raghu, former president of The Institute of Chartered Accountants of India. This could create initial chaos and confusion.
Unlike the value added tax (VAT), say experts, GST is fully computerised, with many layers only professional accountants can understand. So, adopting to it will cost the company, mainly small enterprises.
Andrew Holland, CEO, Avendus Capital Alternate Strategies says, “It is the small companies and PSBs that are not ready. Clearly, the compliance burden will be felt far more keenly by SMEs, which do not have large finance and IT teams to deal with a scale of this magnitude.”
It is estimated that the overall cost for the SMEs sector to become GST compliant over the next two years would be over Rs 35,000 crore. These include cost of hardware and software, legal, technical and personnel support and services. Manufacturers have to not only be GST-compliant themselves, but also ensure that their suppliers are compliant, this may see a production or sales drop.
“GST is a progressive tax reform but a difficult period of six months lies ahead for exporters from July,” says A. Sakthivel, Chairman of the Federation of Indian Export Organisations, southern region.