We all witnessed a historic decision from the Government on July 01, 2017. It is the biggest tax reform in India after Independence. Though, the Government was able to pass the 122nd Constitutional Amendment Bill, 2014 (GST Bill) in Lok Sabha and also in Rajya Sabha, so after long waiting finally, we have Goods and Services Tax (GST) in India.
Now it is the time for the business organizations/start-ups(who still not aware of) to gear up for this biggest tax reform since independence. In the following below-mentioned points, we will discuss the possible steps which an organization could take to be GST Ready.
1. Sensitize the business eco-system
It is an accepted fact that GST is not merely a tax change but a business change as it will impact all functions of an organization such as finance, product pricing, supply chain, information technology, contracts, commercials etc. Thus, it’s imperative that all these functional teams should be aware of the GST. But the underlying question is what should these team members read/ refer for GST?
When GST was in draft stage most organizations had already sensitized their eco-system. The organization who still not sensitized should consider sensitizing its entire business eco-system i.e. not only the employees but also vendors (such as Tier-1, Tier-2 vendors etc) and key customers of the organization. Still, it is not too much as of late; an initiation of training will give the concerned employees, vendors, and customers a sense of involvement in the GST related matters.
2. Understand GST Impact on operations
GST provides opportunities but at the same time, it brings threats too. Given this, an organization may consider carrying out an exercise to identify how its operations will get impacted because of GST. For GST Impact Analysis exercise, the respective department heads such as finance, supply chain, product pricing, human resource etc should be involved to ensure that they provide their inputs and suggestions.
Going one step forward, organizations can also identify possible cost savings which key suppliers/vendors could be entitled to in the new GST regime. Based on the possible cost savings to suppliers/vendors, the organizations can have a discussion with its vendors for the passing of benefits by way of cost reduction. An engaging and healthy discussion with vendors for GST will ensure maximum possible benefit to be passed on to the organization.
Organizations must also have to take into consideration the increased tax compliances. For most of the organizations, in GST regime, compliances are increased dramatically.
Take an example of a service tax assessee, who currently files 2 returns on an annual basis. Now, in GST regime, Service tax assessee could be required to file as many as 61 returns (5 returns per month plus 1 annual return)!!!
Thus, in human resource department will have to be informed about the GST regime so that they can anticipate the increase (and decrease in certain cases) in the manpower.
3. Gear up for transition of Information Technology (IT) systems
Information Technology is a key area for business organizations as irrespective of the fact whether the organization is ready or not, from the very first day i.e. July 01, 2017 GST is introduced, the information technology system of an organization has to be ready and running (many failed at this point) else it will bring the entire business to the standstill.
Let’s take an example of a retailer having a multi-state presence. Previously, his IT system was generating invoice/bill with applicable respective VAT or CST. In GST regime, the IT system should generate invoice/bill with applicable CGST and SGST or IGST. For a service provider, now there are more challenges as the applicability of CGST and SGST or IGST will depend on the Place of Supply Rules (to determine whether the transaction is intra-State or Inter-State). Thus, embedding the Place of Supply Rules in the IT system could pose a major challenge.
If you are not still ready or a Start-up, Given this, to avoid the threat of disruption of business, it is advisable that must have a tax consultant and also study should be carried out to understand how the systems migration for GST could be done or handle for Start-ups.
4. Design Alternate Business Strategies
To gear up for GST regime, the organization may identify alternate efficient business strategies to ensure a smooth transition to GST. Even, supply chain strategies are expected to undergo a major change as entire India has now become one market and there is not any tax cost involved for intra-State vis-à-vis inter-State procurement of goods.
An organization will have to re-visit their pricing strategies as business competitors may well reduce prices of their product to pass on the GST benefits.
However, while forming alternate business strategies, it goes without saying that the organization should take into consideration the commercial feasibility of alternate business strategies on or before these strategies are recommended.
5. Make representation to the Government
The introduction of GST regime has affected negatively (than positively!) to few industries/sectors. Thus, efforts should be made by the organization to identify the possible issues for which appropriate representation has made by the Government through various trade chambers and forums.
GST law is now in the public domain.
Given this, while a current economic situation is characterized by volatile economic conditions, the introduction of GST remains a ray of hope, thus initiation of aforesaid steps can surely help the organizations and upcoming startups gain most of the proposed GST regime.
In the upcoming posts you will know about:
• GST in India
• Ten Things You must know as an entrepreneur about GST
• Rate of GST
• Supply Chain and GST
• GST – International Scenario (as we have global readers)
• GST Model & Registration
• The special one “GST – E-Commerce and Digital Business
Please comment below regarding your doubts and questions about GST. Also, let me know what do you want to learn or expect from me?
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Thanks for your valuable time, talk to you more about GST in next post.
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Courtesy: A special thanks to our beloved CA Pritam Mahure for his efforts.