GST: A beginner's guide for companies

This is the time for all businesses to plan on how they are going to cope with the changes that GST has brought in

Published: 10, Jul 2017

Deloitte globally provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 210,000 professionals, all committed to becoming the standard of excellence. In India, Deloitte member firms are spread across 13 locations with around 30,000 professionals who take pride in their ability to deliver to clients the right combination of local insight and international expertise.

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The debate on whether the Goods and Services Tax (GST) would be introduced from July 1 is finally over and it is now an economic landmark in the country’s policy framework. While many pundits had predicted that the transition process would be very turbulent, evidence till now does not seem to support that. It is now time for all businesses to plan how they are going to cope with the changes that GST has brought in. It is very clear that businesses that are in a position to cope would succeed economically and those that are unable to, could fall by the wayside.

Unlearn and Relearn
Most of the people in business, including tax advisors, have been dealing with the old taxes for a long period of time, and the concepts such as manufacturing, sale, deemed dealer, etc. have evolved over a period of time. There is a significant amount of unlearning to be done as many of the older concepts are no longer be valid under the GST regime.

There is now an imperative need to get used to the concept of supply, valuation, matching of input tax credits, etc. and the ability to take appropriate decisions in GST would be dependent to a large extent on the relearning of indirect tax concepts and processes. The GST framework is extensively process oriented, hence a clear understanding of the entire value chain is critical in being able to understand and handle GST matters.

Classify properly
The GST system in India has several rates and slabs, and requires classification of goods (in terms of Harmonised System of Nomenclature-HSN) and services (in terms of the Service Code). It is therefore necessary to appropriately classify the goods and services and determine the appropriate rate applicable to the specific product or services. While services have, in the past, been subjected to a single rate of tax, they are now covered by specific tax slabs and have a service tariff code mentioned for each type of service. This is essential to prevent future disputes and requires significant attention.

Get vendors into GSTN
The success of any business in the new regime would also depend on its ability to get all its vendors on board and in time. The inability of any vendor to get into the GST Network (GSTN) would result in the business having to treat all transactions with the vendor on a reverse charge basis resulting in additional compliance obligations. Further, any tax payment delays of vendors would affect the ability of the business to obtain credits in time.

Get IT ready
It is necessary to make quite a few changes to the IT and Accounting systems in order to take advantage of the benefits that the GST system provides. Depending on the IT platform used by the business, it may be necessary either to upgrade or tweak the existing systems. Similarly, the accounting processes may need to undergo changes as the current financial year would have both earlier taxes (excise duty, service tax, and VAT) and GST, both of which will need to be reflected in the accounts for FY17-18. It would be prudent to carry out some trial runs during the month of July to ensure that the IT systems are able to generate relevant information required for filing returns.

Existing tax issues and assessments
In addition to focusing on GST, it is necessary that all existing tax issues and assessments are taken up on priority and completed. While this also requires the support of the tax authorities and it is expected that the government would set up some fast track tax courts in order to clear all pending matters, it would be prudent for businesses to realise that pending matters expose them to continuing risk and it would be difficult for them to handle these matters after a few years because the entire law would have changed. Some of the states appear to be indirectly making this happen by insisting on production of declaration forms in order to permit transfer of VAT credit to GST.

Advance Rulings
The GST framework offers a very good avenue at dispute avoidance through the mechanism of advance ruling. In the existing framework, an advance ruling can be sought only in respect of a new business and not in respect of one that has already been assessed in the past. However, since GST is a new law, it is possible to seek an advance ruling even in respect of current businesses. The areas where an advance ruling can be sought include classification, valuation, input tax credit, time of supply, etc. It would be prudent to seek an advance ruling on contentious areas in order to eliminate the possibility of any future disputes and to ensure that the appropriate taxes are collected from customers.

By Mr. MS Mani is Senior Director with Deloitte Haskins and Sells LLP

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