Judging from recent developments , it appears that the government is set to meet its target of implementing the goods and services tax (GST) with effect from 1 April 2017. Even if the deadline is extended, it will be close to the date that the government has been working on.
GST represents not just a change in the tax regime, but a business transformation. Its introduction will necessitate a review and change of tax positions, the supply chain, enterprise resource planning (ERP) systems, business processes and accounting, among others. Industry has very limited time to implement the changes.
After the introduction of GST, there is likely to be an increase in tax compliance obligations.
Today, a service provider with operations, say in 20 states, can obtain a single centralized service tax registration, whereas under GST, separate registrations may have to be obtained in each of the 20 states. A service provider who would currently be filing only three service tax returns a year would have to file four or five returns per state per month, which amounts to about 100 returns per month, after the transition to GST.
A manufacturer with two factories and operations in 20 states would have 23 registrations currently (two excise, 20 value-added tax, or VAT, and one service tax) whereas under GST the number of registrations would go down to 20 (1 for each of the 20 states). But the number of returns would increase from 22 on a monthly basis (two excise returns and 20 VAT returns) and a service tax return on a half-yearly basis to about 100 returns per month after the switch to GST (four to five returns per month per registration).
Also read: GST reforms: Are companies prepared?
Though two of the monthly returns in GST would only be a statement of supplies and statement of procurements, they would still have to be prepared and filed separately on specified dates.
Additionally, under current law, purchase-sale reconciliation is necessary only for credits under the VAT law of a few states; excise and service tax laws do not require any such reconciliation. However, under GST, taxpayers would have to reconcile their procurement with the sales of their vendors and supply of goods/services with their purchasers on a monthly basis in order to avoid denial of input tax credit and imposition of tax liability.
Also, while GST paid on procurements will be available as credit against output GST liability, separate credit pools for three different types of GST (Integrated GST, Central GST and State GST) would have to be maintained for each state. To be precise, a company operating in 20 different states would have to maintain 60 different credit pools and 60 different output tax accounts under the GST regime, as against 23 credit pools and 23 output tax accounts under the current regime.
While the increased compliances would bring greater transparency and result in a positive impact on the economy, the industry would need to set in place appropriate processes and ERP systems to handle the change and be GST-ready.