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Shireesh Sahai, CEO-India, Wolters Kluwer

How tax and finance professionals are helping businesses navigate the GST regime

03 July, 2017

The Goods and Services Tax (GST), one of the biggest tax reforms in India’s history, will permanently disrupt how the nation does business. The disruption will need India Inc to unlearn, and relearn, the basics of tax policy and swiftly become compliant with GST concepts.

This makes the GST a lucrative opportunity for tax and finance professionals, who are poised to help India make this transition seamlessly. The new tax regime will necessitate businesses to quickly identify professionals well versed in the finer aspects of the GST to achieve a higher standard of compliance, with regard to timeliness and accuracy.

Here is what is keeping tax and finance professionals busy as India implements the GST.

Making clients GST-ready
Finance professionals are burning the midnight oil to undertake a detailed analysis of their clients’ business structure and its intersection with business policies and procedures. They are also assessing the impact on core functional areas such as supply chain, pricing, financing, taxation, contracts. Further, they need to serve as the client’s adviser on broader issues like the business’ cash flow and fund flow, and recommend changes in working capital and strategy.

Challenges: Anticipating and analysing the GST’s repercussions vis-à-vis external factors, such as competitor and customer behavior. Another area of concern is the lack of understanding on the provisions of the GST Act such as the ‘Anti Profiteering’ provision. Without providing sufficient details, the provision mentions that it is mandatory to pass on the benefit due to a reduction in the rate of tax or from input tax credit to the consumer by way of a commensurate reduction in prices.

Ensuring smooth transition
While analysing the GST’s impact across various pieces of a business, tax and finance professionals are also working to achieve timely registration of the businesses. A unique registration is required for each place of business, which means multiple registrations for a business present across states. It is crucial that the last tax returns under the old taxation regime are filed accurately to avoid any loss of revenue, by disclosing appropriate CENVAT Credit/ Input tax Credit.

Challenges: Businesses producing tangible goods will find it easier to be GST-compliant, as registration can be made based on place of supply. However, it is complex to ascertain the place of supply, in cases where supply of services is across various locations. This includes industries like event management, advertising and broadcasting.

Even for businesses creating tangible goods, the July 1 date for rolling out the GST is too brief to correctly assess the inventory and their value at warehouses and depots across India. The physical stock will also have to be analysed to ascertain credit availability, in accordance with their business and the category (taxable/ zero-rated/ exempted/ partly in any of it).

Aligning IT systems and accounting software
The GST’s implementation will necessitate a massive overhaul of enterprise software and IT aligned with the new tax provisions, to enable generating GST invoices. Finance professionals will need to work closely with IT departments to understand and extract various kind of reports, as and when required. They will also need to organise trainings to maintain accurate accounting for the GST, maintaining tax ledgers and upgrade inventory management software.

Challenges: The time frame for such a massive overhaul is too short. Making an enterprise’ IT assets GST-compatible will require modification of the entire IT framework. SMEs and unorganised sectors do not have adequate IT support and system. While many companies have independently created GST invoicing utilities, there are concerns about the efficiency of these solutions.

Compliances
The filing of multiple, time-bound returns is a complex ask for businesses. While finance professionals are assisting companies to ensure timely compliances filed by their registered suppliers, delays in compliance from the bigger business ecosystem and the supply chain (including vendors and distributors) will lead to bigger companies facing the brunt of the new law.

Challenges: The several types of levies make compliances difficult for an assessee. There is forward charge being paid by a taxable person on the value of the goods and services supplied by them and reverse charge on goods and services, in specified cases. Lack of clarification on categorization of many goods and services is impeding the ability of finance advisors in guiding their clients.

Compliances need to be done online, which can create an over dependency on network connection, E-Way (though it is deferred for the time being) will be a great challenge to comply, to ensure smooth movement of goods.

Preparing for anti-profiteering
One important thing to do after July 1 will be for businesses to put anti-profiteering rules on their post-GST checklist. As soon as the methodology emerges, the tax and finance professionals will need to make sure that their clients are able to comply.

In the absence of published rules regarding anti-profiteering these professionals are already advising clients to be prepared to take into consideration the impact of tax rate reduction and input tax credit carefully. Everything has to be calculated and recorded carefully. The cost calculations underlying their pricing decisions must reflect the transmission of all the elements in the supply chain.

Challenges: There is no clarity on regulations and the time for which anti-profiteering will be applicable. It is difficult to have one-to-one correlation between expenses incurred and the products sold. Professionals need to be ready to institute robust documentation process to justify the pricing of the product, before and after GST. It is difficult for tax and accounting professionals to predetermine an exact impact assessment on a business or a product line.

The issue at hand is not the willingness to be compliant, but the rushed deadline to prepare for this transition. To withstand this constraint, advisers must prioritise the various deliverables for their clients.

Shireesh Sahai is India CEO at Wolters Kluwer, a Dutch professional services provider. Views are personal.

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How tax and finance professionals are helping businesses navigate the GST regime

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