It is said that when you want something to happen, the entire world conspires it to make it happen. And then when it actually happens, you are left wondering now what to do! Same is the feeling with Goods and Services Tax (GST) which was eluding India since so many years. check more details for “Five Steps to be GST Ready” from below…
GST is a reality from 1 July 2017. So, in the following paras, the critical step plan for business to be GST ready is discussed.
Five Steps to be GST Ready
1. Decode GST
It is an accepted fact that GST is not merely a tax change but a business change as it will impact all functions of an organisation such as finance, product pricing, supply chain, information technology, contracts, commercials etc. Thus, it is imperative that all these functional teams should be aware about the GST. But the underlying question is what should these team members read/ refer for GST?
In this regard, its pertinent to note that most of the key aspects of the proposed GST regime are already in public domain through various such as CGST Act, SGST Act, IGST Act, UTGST Act, and Cess Act, 2017. Also, Rules are finalised and available in public domain. Even the rates for goods and services are available in public domain. Thus, based on this legal knowledge of GST available in public domain the organisation may consider sensitising its employees.
The organisation can consider sensitising its entire business eco-system i.e. not only the employees but also vendors (such as Tier-1, Tier-2 vendors etc.) and key customers of the organisation. An early initiation of training will give the concerned employees, vendors and customers a sense of involvement in discussion much before GST legislation it is put in public domain.
2. Understand GST impact
GST may provide opportunities but at the same time it could bring threats. Given this, an organisation may consider carrying out an exercise to identify how its operations will get impacted because of GST. For GST Impact Analysis exercise, the respective department heads such as finance, supply chain, product pricing, human resource etc. should be involved to ensure that they provide their inputs and suggestions.
Going one step forward, organisations can also identify possible cost savings which key suppliers / vendors could be entitled to in the proposed GST regime. Based on the possible cost savings to suppliers / vendors, the organisations can have discussion with its vendors for passing of benefits by way of cost reduction in the coming years (i.e. after GST is introduced). Early discussion and engaging with vendors for GST will ensure maximum possible benefit to be passed on to the organisation in accordance with Anti-profiteering provisions (i.e. section 171 of CGST Act) and Rule 122 to 137 of CGST Rules deal with Anti-profiteering.
Organisations will also have to take into consideration the increase (most likely!) or decrease (least likely!) in tax compliances. For most of the organisations, in GST regime, compliances are expected to increase dramatically. Take example of a service tax assessee, who currently files 2 returns on an annual basis. Now, in GST regime, Service tax assessee could be required to file as many as 61 returns (5 returns per month plus 1 annual return)!!! Thus, in human resource department will have to be informed about the GST regime so that they can anticipate the increase (and decrease in certain cases) in the manpower.
3. Gear up for transition of IT systems
Information Technology (IT) is a key area for business organisations as irrespective of the fact whether the organisation is ready or not, on the very first day GST is introduced, the information technology system of an organisation has to be ready and running else it will bring the entire business to standstill.
Take example of a retailer having multi-state presence. Currently, his IT system generates invoice/ bill with applicable respective VAT or CST. In GST regime, the IT System should generate invoice/ bill with applicable CGST and SGST or IGST. For a service provider, there could be more challenges as applicability of CGST and SGST or IGST will depend on the Place of Supply provisions (to determine whether the transaction is intraState or Inter-State). Thus, embedding the Place of Supply provisions in the IT system could pose a major challenge.
Given this, to avoid the threat of disruption of business, it is advisable that early study should be carried out to understand how the systems migration for GST could be done.
4. Design Alternate Business Strategies
To gear up for GST regime, the organisation may identify alternate efficient business strategies to ensure smooth transition to GST. Even, supply chain strategies is expected to undergo a major change as entire India will become one market and there may not be any tax cost involved for intra-State vis-à-vis inter-State procurement of goods. An organisation will have to re-visit their pricing strategies as business competitors may well reduce prices of their product to pass on the GST benefits.
However, while forming alternate business strategies, it goes without saying that the organisation should take into consideration the commercial feasibility of alternate business strategies before these strategies are recommended.
5. Make Representation
Introduction of GST regime could affect negatively (than positively!) to few industries/ sectors. GST can have a tagline ‘GST is a matter of solicitation. Please read all the law documents carefully!’ Thus, efforts should be made by the organisation to identify the possible issues for which appropriate representation could be made before the Government though various trade chambers and forums.
While current economic situation is characterised by volatile economic conditions, introduction of GST remains a ray of hope, thus early initiation of aforesaid steps can surely help the organisations gain most of the proposed GST regime. Now, it seems GST is an idea whose time has come!
Author: CA Pritam Mahure ([email protected])
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