With Goods and Service Tax (GST) coming into effect from July 1, experts believe, the move to GST involves complete overhaul of the indirect tax system, which would obviously mean huge impact on businesses, at least during the transition period. So far, about 3.8 million businesses have reportedly enrolled to GSTN portal – the IT backbone of GST. However, there are about 8 million tax-paying businesses in India with the central and state governments – and this shows the humongous challenge before corporate India to be GST-ready.
GST is an opportunity of migrating to a world-class indirect tax compliance system, one that is fully automated, allows proper assessment of business impacts and determination of tax liabilities, and is flexible to accommodate changes in the tax base, rates and rules and procedures.
The challenges of migrating to GST are undoutedly multi-faceted. While the tax-filing processes has to accommodate the different requirements of all the industries, it needs to be robust for all kinds and sizes of businesses, handle the volume the businesses will present, while at the same time need to be uniform and simple for the end user.
The multi-faceted challenges of GST
At present, the whole GST ecosystem is based on an IT-enabled platform, and its success in the transition phase will depend on how well taxpayers adapt to it. The fact that many small businesses still file returns and pay taxes manually means the shift from offline to online will itself be a big disruption for them.
As Shubhabrata Banerjee, CFO Nihilent Technologies noted a situation, “Taxability of transaction between the Head Office and Branch has been a subject of technical debate which will continue under GST Law. When the law is implemented, the substance of the transaction will need to be considered i.e. whether the services have been rendered by Head Office and Branch and vice versa for internal consumption without consideration, or for furtherance of business.”
There is lack of preparation among businesses even though we are only a month away from GST rollout. For example, some states are yet to notify their laws. Moreover, many companies haven’t put in place new systems and software such as ERP. Some technology companies are already termed as GST Suvidha Providers or GSPs and others are also looking to enrol, but the preparation is less than adequate, said Sudipta Majumder, a corporate tax consultant. “This will hit SMEs especially since, unlike larger firms, they do not have any systems of their own and rely almost completely on the ability of the GSP to get things right” he said.
“Many big companies too are still in the process of floating tenders for hiring financial consultants. Such gap in preparation will lead to non-compliance with the tax laws and have economic consequences such as delayed availability of input credit and loss of business,” he said.
The compliance cost is yet another challenge. GST is a technology-driven system where every transaction – from invoicing to payment of tax – has to be done digitally. The government has invested heavily in building the technology ecosystem. But companies and other taxpayers will also have to invest in proper ERP and other software or hire third-party software providers.
Pulkit Punj, Director of AnG India believes that with the GST being implemented, the entire tax structure will be consolidated and all indirect taxes shall fall under the GST tab. However, there are still reservations regarding it throughout the industry. “Today, most IT service providers have a multi-locational presence with the preferred mode of service tax compliance being on a centralized basis from a single location. As opposed to paying service tax to a single jurisdictional service tax authority, the service provider may well be required to pay GST (State GST, Central GST, IGST, as the case may be) to GST authorities across multiple States. What is presently not clear is whether the rules will provide for the service provider to pay an IGST on such supplies from his location or in effect require for the service provider to obtain a GST registration in each relevant State (especially in the case of services that are taxed based on the location of their performance).”
Either way, he believes, the service provider would need to map the relevant place of supply for each of his supplies and report compliance basis the same. An important related aspect in this regard is for the service provider to ensure that GST credits pertaining to the supplies are captured and availed in the location from where output GSTis paid.
“Another aspect to this is the mandatory shift that is required by the government, enabling some IT companies to build up software’s and patch works that help organizations in applying the GST regime in their business,” added Punj.
The silver lining
Apparently, easing the criteria for firms applying to become GST Suvidha Providers (GSPs). At present, over 160 firms including a number of start-ups and smaller companies have shown interest to offer the services to taxpayers for compliance with the indirect tax regime.
The list of applicants released by GSTN includes names such as Flipkart, Clear-Tax and Zopper. Other major IT/ITeS firms such as Infosys, Tech Mahindra, Zoho Corporation, 3i Infotech, have also applied to become GSPs, along with other companies like HDFC Bank, and state-owned firms like Bharat Heavy Electricals Ltd and CSC e-Governance Services.
GSTN opened second phase of appointing GSPs earlier this month by inviting applications. In the first phase, it had selected 34 firms, including Tata Consultancy Services, Deloitte, EY, Reliance Corporate IT Park, PwC, Tally Solutions, among others. These service providers will be responsible for facilitating the tax payers in uploading invoices as well as filing of returns by acting as a one-stop shop for GST related services.
Prakash Kumar, CEO, GSTN said in a statement, “GSTN brought in the concept of Suvidha Providers to ensure that large taxpayers who would be filing lakhs of invoices every day do not face logistical issues on the GSTN portal while doing so.”
While, GSTN has made the secure application programming interfaces (APIs) available to many of its GST Suvidha Providers (GSPs), an Indian Express article mentioned that of the 160 solution providers, as many as 69 had not even begun testing the network by uploading APIs.
Solving the technology challenges in GST implementation
Experts believe technologies supporting GST will have to be simple, industry specific and user friendly that will provide user interfaces and convenience via desktop, mobile, other interfaces and will be able to interact with the GST system ultimately feeding all the invoices into the GSTN portal. GSPs will free up GSTN and it will be able to focus on ensuring authentication, security and compliance of tax filings The heterogeneous system design will ensure reliability and better up-time than one huge portal design.
For example, IT major HP, in collaboration with audit firm KPMG, has launched a platform which it claims will help traders and MSMEs carry on a proper implementation. The platform ‘GST solution’ has the capability to support users to file all their transactions as per the new tax norms in a convenient manner and also reduce the invoice reconciliation requirements of large companies, the company said.
Sumeer Chandra, MD, HP India said, “GST is a major tax reform and we are confident that the GST Invoicing solution from HP and KPMG will enable traders & MSMEs in the country make a smooth transition to the new tax regime and enhance their contribution to India’s economic growth.”
In addition to empowering MSMEs, the solution can also support larger organisations enforce a regime wherein their vendors, distributors and dealers are on the GST system, complying with the process and filing their GST returns accurately.
At the same time, with the impending rollout of GST, the GSTN is seeing several types of cyber threats and is preparing to ward them off. In this regard, not only proper cyber security system is needed, but also awareness by GSTN and GSPs about their correct website links could help prevent taxpayers from being misled into wrong URLs. Rajesh Maurya, regional VP, India & SAARC, Fortinet told ET, “Given the importance of the GSTN to the government, I am sure they will definitely be implementing the best securi ty framework to protect the data along with the highest possible encryption.” For example, GSTN is preparing for other cyber attacks such as Man-in-the-Middle (MITM) and Clickjacking to ward off cyber criminals.
Keeping the challenges aside, GSTN, being the technological backbone of the GST implementation is striving to bring the most advanced and sophisticated technologies with proper emphasis on quality assurance, security and controls so as to avoid pitfalls, said Majumder. “Likewise, enterprises need to quickly access the applications and impact of GST that can make things much easier for them to carry on the business,” he added.
[Copyright By Sohini Bagchi]