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Preparing for GSTBackground

The GST Council has, in the recent past, made quick progress towards its goal of implementing a new tax across India viz. Goods and Services Tax or simply “GST”. GST has been implemented in more than 140 countries across the world. However, India’s journey of implementing GST is a unique one given the multiplicity of taxes subsumed with varying tax rates, assessment procedures, jurisdictions and a significantly large population of business owners. The framework of compliance with GST by businesses as well as the Central and State Governments is being built on the bedrock of technology to be managed by the GST Network or GSTN. The compliance framework appears to be more detailed in terms of sharing transaction data with GSTN in comparison with most other countries and is expected to introduce transparency while necessitating collaboration between buyers and sellers. Interestingly, GST was introduced with the objective of improving the ease of doing business within the country by simplifying compliance and administration of indirect taxes from multiple taxes under federal and state jurisdictions to a common GST under state jurisdiction.

What is GST ?

GST is a destination-based consumption tax levied on value added through the supply chain to be finally borne by the consumer and collected by the State where consumption occurred. GST shall subsume existing taxes such as Central Excise duty, Additional Excise duty, Countervailing duty, Special Additional duty, Service tax, Central Sales tax, State Value Added tax, Luxury tax, Entry tax, Octroi, Purchase tax, taxes on lottery, betting and gaming and State Entertainment tax. Taxes on petroleum products have been kept out of GST and will be subsumed at a date to be notified. Electricity duty and Alcohol for human consumption are exempt from GST and will continue to be taxed as done presently. Other levies such as land revenue, stamp duty, etc. under the State jurisdiction will continue in their current form. GST shall be introduced as a dual integrated tax with Central GST (CGST) and State GST (SGST) or Union Territory GST (UTGST) for intra-State sales and Integrated GST (IGST) for inter-State sales. The Governments, Center and State alike have been training officers across all tax jurisdictions for GST. Re-organising jurisdictions between Center and States and within departments of existing taxes has also commenced. GSTN is also progressing rapidly on building the software for compliance and administration of GST. Migration of registrations from the taxes subsumed to GST have begun and provisional registrations have been issued by most States.

Recent developments

The Government’s strategy has been a consensus approach with State Governments through an Empowered Group of Ministers to amend the Constitution on levy of taxes and thereafter through the GST Council comprising of representatives of the Center and all States. This has enabled the Government to reach a consensus on several concepts such as registration, thresholds, tax slabs, tax compensation for initial years, etc. Most of the other open subjects viz. enactment of laws for CGST, IGST and SGST, Tax rates and Rules are expected to be finalized and legislated through the Parliament and State Legislatures in March and April of 2017. This has left businesses and professionals with less than six months to understand the implications of the final law, plan changes in business strategy, commercials, warehousing and software applications dealing with invoicing and supply chain.

GST Preparation Programme

It’s never too late to commence your organisation’s GST Preparation Programme … even though the last day to begin is now!
Given the foregoing, the implementation of GST by businesses should be agile and in some cases will require to be iterative.

Some of the critical steps in implementing GST are enumerated below :

Migrate registrations from prevailing tax registrations State VAT, Central Excise and Service Tax to GST and obtain Provisional Registration IDs. This is the first step towards compliance with GST. You will need to map your organisation structure with the requirements of GST. GST requires your organisation to register itself in each Sate where it has a business presence. Business verticals within States may be registered separately. Manufacturing organisations which registered each factory under excise laws will have to consolidate their registrations by States and service organisations that were registered centrally under service tax will have to register separately in each State. Access your State VAT portal for VAT migrations, www.aces.gov.in for Central Excise and Service tax migrations and https://www.gst.gov.in for your provisional ID.

Ensure that your Vendors are also preparing for GST and shall be GST compliant on the effective date. It is important that your organisation ensures it deals with registered vendors only to optimise the cost of products and services. Only registered vendors can charge GST on their outward sales and claim input credit on their inputs, thus eliminating the cascading effect of taxes on their customers. Moreover, you should be aware of small scale vendors and vendors adopting the composition scheme. For vendors who are below the taxable threshold having tunrover below Rs 20 lakhs or Rs 10 lakhs; or those with turnover below Rs 50 lakhs opting for the composition scheme and other unregistered vendors, it will be important to ensure that the total cost of their products and services are lower than that offered by registered vendors in the GST regime.

Let your customers know of your organisation’s preparedness to be compliant with GST laws and requirements. As you should be knowledgeable about your vendors’ preparation, so will your customers expect the same of your organisation’s preparation for GST. Ensure that you communicate your actions from time to time and let them know how you are progressing with your journey towards compliance with GST. If you are re-organizing your organisational registrations, be sure to let them know of the same so that they can expect invoicing from registrations different from the current ones.

Review internal organisational processes to capture information required for charging GST and claiming GST Input Credit. GST requires a high level of collaboration between all participants in the supply chain. GST law requires invoices to contain the issuer’s and customer’s GSTIN, place of supply, product and services codes viz. HSN/SAC, tax types, tax rates, taxable value and tax amount among other invoice information. Work with the Sales and Commercial teams to ensure that such information is accurately captured for invoices to be raised on customers for products and services sold and that procurement teams are aware of the same information that vendors shall include in their invoices.

Review invoicing and accounting software applications and ensure they are compliant with GST and enable the organisation upload periodical details to GSTN. A key pillar of success in implementing GST lies in maximizing integration within Order-to-Cash and Procure-to-Pay processes. Technology will play a pivotal role in ensuring compliance of invoicing and accounting applications with the requirements of GST. Ensure that the software vendors are aware of GST requirements and are updating their applications to capture required information, issuance of documents and generation of periodical uploads and returns to be filed with GSTN. Work on customized software components within the transaction process to ensure that they are compliant with GST too. It is important to ensure that custom components are not the cause of non-compliance within processes. Assess the requirement and services provided by GST Suvidha Providers viz. GSP to upload files and returns as well as access information from GSTN via GSP’s portal.

Review commercial terms of contracts with vendors and customers and de-risk your organisation from inclusive taxes, future tax rates, documentary compliance, etc. It is essential to review your organisation’s contractual terms with customers and vendors to ensure that tax incidences are neutral and not burdensome. Since the rates, when announced maybe higher than existing taxes, it is important to verify that the contract allows a pass-through of all indirect taxes to customers. Moreover, vendor contracts should ensure that tax compliance and documentation is committed to by vendors and necessary penalties or exit terms are included. Appropriate verbiage may also be required to be included in contracts to ensure arm’s length pricing within related parties and appropriate positions for valuation of products and services issued free of cost.

Communicate your organisation’s GST number, GSTIN to all Vendors. This will ensure that your organisation’s GSTIN is quoted accurately on vendor’s invoices and GSTN uploads to enable your organisation avail GST input credit on products and services procured. Currently, GSTN is issuing provisional 15-digit GSTIN numbers which will be confirmed in due course. Final GSTIN numbers are most likely to be the same as the provisional numbers issued as only the last two characters viz. check digits can be varied. In view of the shortage of time required and the vast scope of vendor communication, it is recommended that the provisional numbers may be communicated with a caveat that final registration numbers, if different shall be intimated on their issuance.

Update yourselves regularly with GST developments. Central GST, Sate GST, Union Territory GST and Integrated GST Acts will be enacted by legislature and notified shortly. Rules on Invoices, Returns, Payments, Refunds, Valuation, Reverse Charge, GST collection at source, Inputs Credit and Distribution, etc. will also be notified. GST rates for goods and services along with Harmonious System Nomenclature (HSN) and Service Account Codes (SAC) will also be notified which will be important for pricing and tax invoices. Along with the foregoing, one will have to keep abreast of migration from existing taxes to CGST and SGST/UTGST on the effective date as well as compliance with returns, invoices for goods in transit and unbilled revenue taking care of accounting for such migration. Regularly visit the CBEC Website for updates on GST.

The Government has now pressed the peddle for accelerating implementation of GST across India. All tax enforcement agencies at the Central and State level are preparing for this transformative tax regime with full commitment. It is now upto industry, businesses and professionals to commit their participation and make this much-awaited tax reform successful and ensure a seamless migration.

Note: All views and opinions expressed here are personal.

Thank you for your patient reading. I shall be delighted to receive your feedback, suggestions and comments on this post or at mel_brags@hotmail.com.

Author: Mr. Melroy Braganza (Associate Vice President – finance : Indian Hotels Co Ltd.)

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