With the recent approval of central Goods and Services Tax (GST) laws and rules by the lower house and the GST Council respectively, implementation of GST in India from 1 July 2017 appears apparent.
After knowing the broad structure of GST proposed for India, it is time for the industry to focus on the transition tasks to be undertaken to prepare for any unwarranted disruption in carrying out business.
Even though multiple interpretations on a practice to be followed is unquestionable, at this stage, it is expected, from evidence from other countries who introduced GST, that certain positions would emerge from the interpretations to be adopted by tax authorities and the rules and guides introduced by the government during the transition.
GST claims to change the way of conducting business, which is expected to be easier and simpler to administer. Keeping this in mind, we have listed below key tasks every business must undertake during this transition period to derive maximum benefit of this major change.
1) Review of business processes and supply chains to identify the incidence of GST and requirement for additional working capital for transactions not being taxed at present:
GST is expected to have an impact on prices, business processes, investments and profitability in all segments of the economy. Under the proposed GST structure, tax is expected to be applicable at each stage of the supply chain and credit to be available to the respective buyers.
Tax incidence is expected to be once on the end customer and all taxes at different legs of the supply chain are expected to be creditable. From the consumer point of view, the biggest advantage is expected to be the reduction in the overall tax burden and embedded tax costs on goods, which is currently estimated at 25%-30%.
2) Discussions with suppliers and customers and necessary amendments to contracts and business terms:
Businesses should initiate discussions with their suppliers and customers to make them aware of the upcoming change and intimating timelines for receipt or issue of payments, invoices etc. in order to overcome any transitional challenges. In case, the suppliers are expected to benefit from GST on account of additional input credit, businesses should renegotiate their prices.
Supplier and customer contracts and business terms to be reviewed for necessary amendments to enable charging of GST once implemented. This will help manage the transition to GST and ensure recovering of any additional tax impact.
3) Accounting and reporting requirements:
It would be of utmost importance to identify the accounting and reporting requirements under GST in order to assess if the current system needs to be entirely revamped or can be managed with modification.
4) Technology changes to support GST compliance once implemented:
Considering that the GST structure proposed for India has been envisaged to be administered through a robust information technology platform on account of rigorous compliance requirements, businesses must assess of technology changes required to facilitate GST compliances.
All existing indirect tax functions being supported by technology such as tax structure, tax computation, tax payment, tax incidence, availing credit and utilization etc. of existing businesses may require modification to align with GST structure.
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