“Maahol shaadi ka hain” (“the atmosphere resembles a wedding”), quipped a customer when I asked how his preparations for India’s Goods and Services Tax (GST) were going.
And truth is, the transition to GST does resemble a typical Indian wedding, where 80 percent of the activities happen in the hectic final week leading up to the event. Everyone gets charged up, tempers flare, anxieties abound, and there is a general apprehension around whether the priest will be able to meet the muhurat (auspicious time for the wedding).
After speaking with the aforementioned client and others, I compiled a list of observations and tips that may help lower the anxiety levels and bring some order to the madness as the launch of GST approaches at midnight this Friday. Use the ones that seem relevant to your organization.
Get IT systems ready
- Continue executing your IT migration plan: Include such activities as sandbox testing and communicating to stakeholders, especially if the switchover will be longer than a day and is likely to disrupt business functions like dispatch, exports, etc.
- Reschedule exports: Ensure the final few days are kept free for the system switchover. Thorough acceptance testing is needed to ensure that most of the normal scenarios are captured.
- Decide how to portion out CGST and SGST: While a combined GST rate has been announced, it’s unclear how much should be allocated to Central GST (CGST) and State GST (SGST). Based on informal discussions with government authorities, companies should allocate half to each.
- Look to social media: The government is providing clarity around important issues, which are now captured in IT systems of businesses. Some examples include:
- No double tax on high sea sales, as goods will be taxed only once they are imported into India
- Customs cess will be calculated on basic customs duty (BCD), and Integrated GST (IGST) will be computed on BCD and cess
- Purchases from an unregistered vendor are exempt to the extent of INR 5000 per day
- There is no provision for capital goods in transit in the GST law
- Export oriented units (EOU) exemption on imports would be restricted to BCD
- Scrips like the merchandise exports from India scheme (MEIS) can be used only for payment of BCD
Prepare plan B
Companies are setting up a plan B where there is a possibility for plan A to fail. Some feel this is particularly necessary for IT system readiness. If the system is not able to generate an invoice on 1 July, for example, companies must be prepared to issue invoices in another way.
As distributors have slowed procurements in the run-up to GST, some sectors are expecting a massive surge in demand during the first week of July. Talking to transporters and reserving the fleet figures top on their agenda.
Clarify roles for you finance/tax team
Carve out the duties of each finance/tax team member to ensure that:
- Invoices received are verified to include all necessary particulars and accurate information so that any mismatches are noticed much ahead of the return date.
- Circulars/notifications that will be issued in the coming three days are tracked.
- Hard copies of documents are kept in one place for quick reference; some companies plan to use an intranet to post documents online. These include the summary of Twitter questions released by the government, various formats of customs documents released by the Central Board of Excise and Customs (CBEC), one-page clarifications issued by the Directorate General of Foreign Trade (DGFT) on foreign trade policy, central notifications amending rules, etc.
- Government releases are continually monitored; use WhatsApp and other methods to disseminate the information among tax and business teams.
When in doubt, ask
One client needed clarity on the tax rate for the parts that go into their main product. Unfortunately, while the schedule released by the GST Council mentions the heading for the product and parts, the description does not cover the parts. The business is pressing hard for clarity as dispatches cannot wait for clarification. The only answer in such cases is to go ahead with a considered assumption on the tax rate and then reach out to the government – talk to local excise officers, tweet to @askGST_GoI, email firstname.lastname@example.org, or call 1-800-1200-232.
For GSTN-related queries, email email@example.com, call 0124-4688999, or tweet to @askGSTech.
While the government has issued anti-profiteering rules, there is no clarity on how profitability is to be calculated – product-, variant-, registration-, plant-, or entity-wise. There are questions on whether a loss-making unit also needs to pass on any benefit it receives from GST and whether losses due to GST (like loss of credit on stock beyond one year, or loss due to additional compensation given to dealers/distributors in June) can be adjusted against the benefits from the application of GST. Some people have, however, worked out product-level impact on pricing that includes an interest component on cash flow impact and have gotten it certified from a professional. This will be now suitably adjusted in the new price list from 1 July.
In an interesting example, one company asked its vendors to declare that their prices are adjusted for the benefits accruing to them from GST in terms of section 171 of the CGST Act. If the vendor does not respond before a specified date, it will be presumed that the prices are adjusted for such benefit. Having passed the onus onto vendors, the company is free to work its own GST impact independently and pass it on to its customers. It also forces its vendors to take action and pass on the benefits through the value chain.
Other best practices
- Prepare a dos and don’ts list for each of the functions, such as procurement, logistics, sales, accounting, IT, etc., in the organization to follow during the transition period and thereafter to bring clarity to decision making and avoid ad hocism
- Cross check the product/service codes (Harmonized System of Nomenclature (HSN) and Service Accounting Codes (SAC) of goods/services procured) in the system with those claimed by the vendors
- Plan a steering committee/leadership meeting in the first week of July along with your consultant/advisor to take stock of the GST rollout
- Operate a helpdesk for vendors and customers during the fortnight following the GST rollout
Celebrate, we are Indians
Some companies have planned a grand program for the midnight launch of GST. After all, if parliament can have a midnight session on Friday night, why shouldn’t corporates celebrate GST for freeing them from archaic tax laws? Such a celebration – the wedding, if you will – would be a great way to recognize teams that have been burning the midnight oil over the past six months or so getting ready for GST – and that may still be doing so come Friday night. So get the champagne ready to pop open after issue your first GST invoice!
This blog is authored by Dr Waman Parkhi, Partner, KPMG India.
Avalara is an experienced application service provider (ASP) and partner of authorized GST Suvidha Providers (GSPs). To understand how our cloud-based application Avalara TrustFile GST can help you with GST compliance automation, contact us through https://www.avalara.com/in/products/gst-returns-filing.