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From IT-readiness, rates impact to compliance: Top challenges in getting India GST-ready

There are some major challenges and apprehensions over impact and implementation of the GST, given he scale of change envisaged under the ambitious tax reform.

Parimal Peeyush Parimal Peeyush
New Delhi Updated on: June 30, 2017 12:14 IST
The government admits there will be initial hiccups once
The government admits there will be initial hiccups once the GST is launched

GST: The implementation of the Goods and Services Tax hours from now is historic in more ways than one. From the scale of change it encompasses bringing into the existing system to the many modifications that businesses across the country will have to bring about to adapt to the new system, one cannot help but wonder whether we are indeed ready. For, the GST will combine more than a dozen levies into 'one nation, one tax' on July 1. The impact of change will be felt across the board; from small-scale manufacturers who operate in one state to big businesses, accountants, banks and consumers, change will be visible to India’s 1.3 billion people across 29 states who speak 22 official languages.

The government too agrees that the process of transition will not be without hiccups. Finance Minister Arun Jaitley said on Tuesday that the rollout of the GST will have some initial problems. “To begin with, people could face some difficulties because any change over has its own problems, but it will settle down and the country will benefit,” Jaitley said. The FM’s assurance of sorts comes at a time of widespread uncertainty over multiple rates, the readiness of systems, the technology involved and the changes that need to be brought about. While the change is certain, so are the challenges and apprehensions – for small businesses as well as the industry.

Also Read: GST impact on your pocket: What gets cheaper and what becomes costlier from July 1

Here are the top challenges ahead of GST launch:

Technology and IT-readiness

On June 25, the first day for online registrations for GST, businesses hoping to begin with the process of migrating to the new system were met with technical glitches. The process, which was to begin at 10 am started after a delay of 4 hours. Traders complained that the OTPs they received on their mobile numbers when they began the process of registration were also not working. While these glitches were dealt with, one cannot blame taxpayers for their apprehensions. Going forward, the GST Network will process as many as 3.5 billion invoices each month and taxpayers may be required to file over 35 returns a year. With the scale of load that is envisaged on the system, there is doubt on whether the technology in place will be able to handle the billions of credits, facilitate tax collections, provide refunds and check evasions. With dates stipulated, any failure on account of technical glitches will be nothing short of a nightmare for the industry.

Paperwork and Compliance

As discussed, every business big or small will see a change in the way it maintains its books and pays taxes. The entire system of taxation and every transaction will have to be recorded online, and mandatorily so. “The entire ecosystem needs to be changed to accept GST,” K Raghu, former president, Institute of Chartered Accountants of India, told IndiaSpend. Filing returns too becomes a cumbersome task, with 37 annual returns that will now have to be filed for a business operating in just one state. For those operating in more than one, the number of returns and updates to be made on the network will go up accordingly. Such stipulations have smaller businesses more worried than bigger ones. Such businesses which haven't been in the tax net before may continue work in cash and have less than perfect books. Nevertheless, they'll be required to upload their tax details to the GSTN and compute their returns if they fall across the threshold for inclusion under GST. Besides, the different rates announced by the government will require businesses to upgrade their systems, train manpower and understand the new taxes.  

Also Read: Goods and Services Tax: Complete list of items and their GST rates

Another issue is that of compliance to new rules stipulated under the Goods and Services Tax, the most contentious among them being the anti-profiteering provision which even arms officials to cancel the registration of offenders. While the intent of the rule is to ensure that the benefit of lower taxes is passed on to the consumer, industry is still not clear on how to go about it. While there have been directives by the government, the industry is still grappling to understand the mechanism that needs to be followed to lower prices of items with pre-printed MRPs. Moreover, the anti-profiteering rules do not clarify the computation of profiteering or how the investigations under this rule are to be carried out.  

Accounting Changes under GST

Perhaps the biggest change will be in terms of accounting and as per experts, over 50 per cent of businesses in India do not know of the changes that the Goods and Services Tax will bring in. “ Nearly 50% of Indian businesses are not aware of the changes that GST will usher in,” Bharat Goenka, managing director, Tally Solutions, was quoted as saying in the Economic Times on June 5. The company, whose accounting software is perhaps used the most across India, had then said it was still waiting for the complete GST rules so it can roll out its software for companies.

GST Challenge for Banks

An association of Indian banks recently expressed their lack of readiness regarding the change to the new tax regime. "Since the GST will be operational from July 1, 2017, banks have to make lot of changes in their systems and other procedures. The preparedness of all banks for implementation of GST on July 1, 2017, is a question mark," the IBA conveyed to the Parliamentary Standing Committee on Finance. While banks have now said they are ready, after a possible nudge from the government, the IBA had cited services by banks to customers being centralised as well as localized as part of its challenges. Banks will have to make changes in the existing infrastructure which would be a huge challenge for them.

Supply Crunch

The last few weeks have seen retailers, both offline and online, offer some big discounts on products in order to clear their stocks. This is primarily a move to liquidate their inventories to avoid having to deal with the prospect of having two different prices for the same product. HMD Global, the company that now markets Nokia phones, is facing difficulties in the launch of its new smartphones in India. While Nokia 3 was already made available at offline stores, the company is facing a tough time bringing the Nokia 5 and Nokia 6 to the Indian market as per its schedule of first week of July. While HMD Global is ready with the supply, stores which are hesitant to stock up the goods in view of the initial fluctuations under GST. Shopkeepers want to keep no stocks in this case as a measure of precaution ahead of the GST launch. At the same time, auto companies have also slowed down production to ensure that dealers liquidate the existing stock. Experts believe that companies may be delaying production so they can claim a credit against their costs for the first time under the new regime. However, once GST is implemented, there are apprehensions of transportation bottlenecks as stores rush to restock.

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