The Goods and Service Tax (GST) that came into effect from July 1, involved complete overhaul of the indirect tax system, which was expected to have huge impact on businesses, at least during the transition period. 3.8 million businesses enrolled to GSTN portal in the initial month of GST roll out- the IT backbone of GST. And there are nearly 8 million tax-paying businesses in India with the central and state governments – and this shows the humongous challenge before corporate India to be GST-ready.
Undoutedly, GST is an opportunity of migrating to a world-class indirect tax compliance system, one that is fully automated, allows proper assessment of business impacts and determination of tax liabilities, and is flexible to accommodate changes in the tax base, rates and rules and procedures.
The challenges of migrating to GST is undoubtedly multi-faceted. While the tax-filing processes has to accommodate the different requirements of all the industries, it needs to be robust for all kinds and sizes of businesses, handle the volume the businesses will present, while at the same time need to be uniform and simple for the end user.
Can we identify these challenges in our business environment? Yes we can, a taxpayer would definitely face these following challenges as he would be moving to a complete new taxation law and would be requiring changes in ERP system as well. The following are the probable challenges which a taxpayer may face while interacting with the new tax laws and technology.
Challenge No. 1: Adaptation to IT- Enabled Platform
Assessment: In GST everything is technology driven, for Ex. the credits are transferred to buyer from the return furnished by seller in GSTR 1, and even the ledgers such as E Credit, E liability and E Cash ledgers are balanced and maintained online in GST Portal. So learning is gonna be a huge aspect for a taxpayer to understand these and he would be required to record all these transactions for future reference so he should have to move toward ERP drive for the business.
How could it turn out to be a challenge: Our economy comprises of many small businesses, and they are still filing their returns and paying taxes manually. For them the shift from offline to online will itself createabigdisruption in their day to day operations during the learning process under GST.
Challenge No. 2. Taxability of transaction between the Head Office and Branch
Assessment: This has been a subject of technical debate which will continue under GST Law. When the law is implemented, the substance of the transaction will need to be considered i.e. whether the services have been rendered by Head Office and Branch and vice versa for internal consumption without consideration, or for furtherance of business.
How could it turn out to be a challenge: The question about taxability and accountability will be raised. GST law says that the taxability arises on Supply and in eyes of law Head Office and Branch are different entity where in the each entity has got different identity by way of GSTIN number allotted under same PAN for registration in different states or for the case be in the same state. Having regarded now there will be a confusion if there’s lack of knowledge about treatment of these transactions for Ex a transaction between Head Office and Branch within same state has to be treated as Intrastate transaction and CGST and SGST has to be levied and collected. And this will require additional Cash flow to be introduced in the cash flow budget of the company.
Challenge No. 3. Lack of Preparation
Assessment: Some states are yet to notify their laws such as laws related to E waybill for Interstate transactions etc., Moreover, many companies have not put in place new systems and software such as ERP. And also the provisions related to enrollment of GST Suvidha Providers or GSPs and others on GST Portal are negligible and still inadequate.
How could it turn to be a challenge: GST demands for one India one tax. Where s we are witnessing few lags when it comes to Eway bill. As we know that the centralized eway bill system for inter-state transactions have already commenced from 1st Feb whereas for Intra State transactions there has been given a probation period of 4 months continuing till 1st of June. This creates the imbalance in law. Having said, we also saw that the inter state eway billing was also put to stop due to technical glitches on the eway bill portal. All this will add up an additional responsibility on to the ERP system as the APIs will be on regular change till such time a unified and centralized eway bill system is introduced.
Challenge No. 4. Compliance Cost
Assessment: GST is a technology-driven system where every transaction – from invoicing to payment of tax – has to be done digitally. The government has invested heavily in building the technologyecosystem.
How could it turn out to be a challenge: This would mean that companies and other taxpayers will also have to invest in proper ERP and other software or hire third-party software providers. For SMEs this would be a difficult decision to take taking into account the scale of operations they organize for their businesses.
Challenge No. 5. Mandatory Shift – to be promoted by government
Assessment: Another aspect to this is the mandatory shift that is required by the government, enabling some IT companies to build up software’s and patch works that help organizations in applying the GST regime in their business
How could it turn out to be a challenge: Will require additional provisions for allowing third party software s to interact with GSTN and link the software with GST Portal. So that the returns filing process, Registration process and reconciliation process could be routed through third party software s into GST Portal and instead of recording the data into GSTN servers with the governments own software, each third party software companies could be given a space for rent to maintain the data related to tax payers in these rented servers to be kept and maintained in GSTN for carrying out all the above said activities. But this will demand huge outlay which is a bigger challenge if taken.
Experts believe that the technologies supporting GST would have to be simple, industry specific and user friendly that could provide user interfaces and convenience via desktop, mobile, other interfaces and should be able to interact with the GST system ultimately feeding all the invoices into the GSTN portal. The heterogeneous system design will ensure reliability and better up-time than one huge portal design.
At the same time, with the impending rollout of GST, the GSTN is seeing several types of cyber threats and is preparing to ward them off. In this regard, not only proper cyber security system is needed, but also awareness by GSTN and GSPs about their correct website links could help prevent taxpayers from being misled into wrong URLs. Given the importance of the GSTN to the government, I am sure they will definitely be implementing the best security framework to protect the data along with the highest possible encryption.” For example, GSTN is preparing for other cyber attacks such as Man-in-the-Middle (MITM) and Clickjacking to ward off cyber criminals.
Keeping the challenges aside, GSTN, being the technological backbone of the GST implementation is striving to bring the most advanced and sophisticated technologies with proper emphasis on quality assurance, security and controls so as to avoid pitfalls. Likewise the enterprises needs to quickly access the applications and impact of GST that can make things much easier for them to carry on the business, and for this they have to mind the ERP system that could ensure complete reliance and ensure 100% GST compliance.
Role of ERP system in GST environment
The changed business dynamics in India on account of introduction of GST has demanded a complete overhaul in the way we carry out our day to day business operations. For an outsider, India has always been a country full of different taxes with each state having different tax laws. But this has been drastically changed after the enrollment of GST from 01st July 2017 onwards, as there is now only one tax throughout the country, i.e. ‘One Nation One Tax’. But the question remains as how would it be going to impact small, medium and large sized businesses, will it pose a challenge for them or will they be able to easily adapt to the new taxation structure.
The key here lies with the ERP Software as most of the organizations in India, regardless of how small or big they are have Tally Accounting Software to work with. In earlier taxation structure we witnessed that the accounts team were required to file their returns manually which is quite a tedious task, considering the size of the organization and its turnover for the fiscal year. This can be made easier as GST can easily be integrated with the Tally ERP 9 software. Now, small and medium businesses can easily automate their functioning with the integration of Tally & GST. Under GST, the businesses would require to file at least 5 returns a month which could be a monotonous task to be done manually. GST’s compliance with Tally ERP will help businesses automate this process which will save a lot of time and cost.