There is a need for companies to gear up on the technological reporting front to ensure hassle-free compliance going forwards.
The goods and services tax (GST), which was implemented on July 1, 2017, has been one of the biggest indirect tax reforms India has ever seen. The initial year of GST has not been smooth. Typically, as a part of the GST implementation process, taxpayers across the nation carried out series of activities, including taking tax positions, extensive upgradation of ERP, and alteration of processes around transactions to be GST compliant.
The entire process of GST implementation was completed amidst clouds of interpretation issues, the absence of clear guidelines and, more importantly, with the pressing goal of ‘going live’. One of the important aspects which was overlooked was whether the advice received on GST was appropriately implemented at the ground level, considering that data collation and filing the returns in a timely manner took the entire energy and bandwidth of the in-house tax teams. Processes put in place were not adequately followed, sometimes because of the data entry issues by non-GST experts, and at many a times because of third party challenges arising out of their understanding of GST and wrong filings. The GSTR 2A reconciliation is probably one of the largest examples of how there was a mismatch of data between the credit being claimed by the recipient of supplies and that being filed by the supplier. In addition, frequent changes in GST law and some of the counter-intuitive interpretations taken in AARs have been adding to the woes of the industry about positions to be taken.
The GST laws provide for a mandatory audit to be undertaken by every registered person whose aggregate turnover during a financial year exceeds `2 crore. The audit is required to be carried out by a chartered accountant or a cost accountant, who is required to certify “whether in his opinion and to the best of his information and according to examination of books of account including other relevant documents and explanations given to him, the particulars given in the said form No.9C are true and correct subject to observations/qualifications, if any”. To this end, form GSTR-9C has been notified which requires reconciliations to be done for taxable turnover, input tax credit and tax paid. Another requirement by the corporates is that of filing of annual return in form GSTR-9.
With the government’s increased focus on tax compliance and the exhaustive reporting that is required of corporates, it is not going to be an easy task going forward. There is clearly a need to look back and do a detailed introspection on what was done in the last year, and what improvements need to be carried out to ensure that companies do not end up being non-compliant or struggling to obtain data that is required to be reported. The GST audit provides an opportunity to the industry to carry out the introspection exercise. While one approach to look at the GST audit is that it is a statutory requirement along the lines of the erstwhile VAT audit, and what is asked of the auditors is merely a certification of mathematical accuracy, would it not be wiser to look at this as an opportunity to carry out a review of what has been done over the past year, instead of merely considering it as ‘one more compliance’?
To this end, the GST audit approach should be divided into phases to include (a) position review, (b) reconciliations and certification and (c) GST process review—focused on technology enhancements to achieve the desired reporting requirements and technology driven validations. It is noteworthy that, currently, the government is further ahead on technology than the industry, and there is a need for companies to gear up on this front to ensure hassle-free compliance going forwards.
While planning the timelines for the GST audit, the taxpayers need to factor in some key deadlines prescribed under the GST law. The last date for filing the annual return is December 31, 2018, and the GST audit report is required to be submitted along with the annual return. In addition, corporates are also reeling under the pressure of carrying out the credit matching which needs to be done before the filing of returns for the month of September 2018. While it is unclear as to what is the last date which needs to be considered for credit matching, whether it is October 20, 2018 (last date for filing of form 3B), October 31, 2018 (last date for filing of GSTR-1) or the date of filing of the annual return, a conservative approach requires that the exercise be completed at the earliest possible date, preferably before October 20. Needless to mention this becomes the top priority.
That said, there is a limited time-frame available to complete the GST audit, considering the time required for carrying out the review exercise and the reconciliations that are required to be prepared. Prudence demands that any wrong positions taken or any errors committed are corrected while filing the annual returns and that the audit report is aligned to the annual returns and the books of accounts, leading to improvements in the future.