Consultancies wake up to challenges of implementing GST at their own firms

MUMBAI: Even as Big Four consultancy firms have managed to clinch mega deals to get India Inc ready for the new tax regime, people in the know claim, these players have now woken up to the challenges of implementing goods and services tax (GST) framework at their own firms.

While EY, PwC, KPMG, Deloitte, BDO and Grant Thornton maintain that their ‘best teams’ are implementing the GST for them, insiders point out that senior partners at these firms are still busy attending to clients’ needs.

For many of these firms the biggest problem is the way business is done currently and the implications under GST. “The best people are busy servicing clients and so they are in a difficult situation now with a lot of work yet to be done and just 16 days to go,” points out a senior partner, indirect tax, with one of the Big Four firms. “It’s only last fortnight that we were asked to also help with the firm’s GST implementation,” he added.

The problem is multifold for these firms. And most of them are looking to find a way around these issues by reviewing and revising existing contract terms with their clients

“Most firms have two to three network firms that often collaborate. How will that be treated under GST?” asked a partner with one these players. Most of these firms service their audit clients through separately registered entities and hence operate two to three similar sounding firms under one organisational umbrella.
“Also, the problem is the ‘place of supply’. Determining that is going to be tough,” he added.

Milind Kothari, CEO of BDO India, said that there is a lot of confusion around the ‘place of supply’ rules for the firms. “Currently, we have centralised registration but under GST it will be decentralised registration. Implementing this is tough,” he said.

The issue is when a firm is working on a contract, as often executives and partners across India collaborate on the project. However, under GST every state must impose tax on revenues generated in their own territory. Determining the contribution made by a partner sitting in one location viz a viz another may just turn out to be tough, say insiders.

Add to that, often the work consultancies do is not location-based. Like advising a Mumbai-headquartered company on how to deal with a tax demand raised by Income Tax department in Patna, or helping a Kolkata-based company to acquire another Chennai-based company whose assets are spread across India.

While these consultancies would be paid fees for such contracts, it would be extremely difficult to determine which state must be paid what proportion of the tax. GST is consumption-based and tax is paid where consumption happens.

“We expect the government to provide more clarity on place of supply rules – specifically if GST can be paid on the basis of the place where the contract with our client has been executed,” said Pratik Jain, partner and leader, indirect tax, PwC India.

“Equally challenging is the updation of the customer/vendor database, transition management and implementation of GST on intra-branch services. In some states, obtaining GST registration is a challenge,” said a KPMG spokesperson.

The challenges are unlimited as the compliance burden has just gone up tremendously for the firms.

“There is a multifold increase in compliances, with the number of returns increasing from two returns per year to over 500 returns. Transactions within same legal entity would now attract tax and ensuring compliance for such transactions would be a challenge,” said Hiresh Wadhwani, partner and chief operating officer, EY India.

Most of the firms are also going back to their clients and asking them to rearticulate the existing or new contracts. Under the new contracts, the scope of work is defined and even which partner or team from which area would work would be stated. Some firms are also asking their employees to follow a process.

“We are creating awareness among different stakeholders — within the firm and business partners,” said Wadhwani.

[Copyright By SACHIN DAVE]