The recent approval of the central GST laws by the GST council suggests that its implementation from 1 July 2017 across India is apparent. It is considered as one of the biggest tax reform in the history of independent India and some feel that it is a lifestyle reform capable of changing the way businesses are conducted in the country. While it is the most talked about subject in the recent past still, nearly 50% of the businesses are not really aware of the impact it will cause as they consider it as just another tax regime.
The big business houses are gearing up for the change, but the level of unpreparedness is higher among small businesses and small entrepreneurs. Those who have a turnover of less than Rs 20 lakh feel they can bypass this new tax regime as they are exempted. What they don’t understand is that this exemption is not good for them in a long run. This is because if you don’t fall in the GST and are vendors to those who fall in it, then those businesses that you supply your product to will have to bear the burden of your compliance. This will eventually compel them to switch to vendors who are themselves registered under GST.
Joining the GST is not a Herculean task as some of the entrepreneurs or small businessmen presume it requires a high level of compliance. Since the broad structure of GST is already known and it’s less than a month since it will be implemented, it’s high time for the businesses to get ready for the change.
Here’s how businesses should prepare themselves to embrace the change as smoothly as possible.
1) Review the Business Processes and Supply Chains
It is expected that GST will impact all segments of the economy when it comes to business processes, prices and investments and profitability. Until now, there might be some transactions in your business processes that were not taxed. So, identify them as under the new structure, it is expected that tax will be applicable at each and every stage of the supply chain. Thus, the businesses need to access their supply chains and business processes to see the changes that need to be made and get it done in time to optimise credits that would be given in certain items under the GST.
2) Make Amendments to Existing Contracts
Businesses need to discuss with their vendors and suppliers of the upcoming change and make amendments to overcome transitional challenges if any. Under the new tax regime, the suppliers will be benefited by additional input credit. Thus, the businesses can renegotiate their terms on the price front. The existing contracts should be reviewed so that the necessary amendments are made in time to allow smooth transition to GST and also ensure the recovery of any additional tax impact.
3) Accounting and Reporting Requirements
The accounting and the reporting requirements will be revamped under the GST and that should be taken care of for the smooth transitioning. Some of these changes are as under:
- GST advocates that tax would be levied on ‘supply of goods or services in the entire value chain’ as against the current indirect tax laws. Currently, manufacturing comes under central excise duty. Then there is a provision of service for service tax, the sale of goods for state sales tax, which is different for different states.
- The Central Sales Tax (CST) that is incurred on the inter-state purchase of goods will be abolished and an integrated GST will come in place, which is creditable.
- Under the GST, the destination-based consumption tax principle will be adopted. It means that the tax will be levied at the place where the consumption of goods or services takes place.
4) Technological Changes
The implementation of GST requires a rigorous compliance requirement that can be met only if businesses adopt a robust information technology platform. Thus, they should look if their systems require any technological changes to facilitate GST compliances. Some of the key areas that need immediate attention are:
The particulars for the new tax structure needs to be included in purchase orders, invoice, bill of entries recipient, vouchers etc.
- The general ledgers are to be replaced by ones that meet the reporting requirement under the new regime.
- The vendor master needs to be changed to include the GST registration number and some other details of the vendors as specified.
- The GST return formats will obviously be different than those used currently for indirect taxes.
GST claims to be a game changer when it comes to conducting business and getting ready for it will make things simpler and easy.