IT infrastructure and GST compliance in 2019: What we can expect

Passage of the Goods and Services Tax (GST) has been one of the most important tax reforms of modern India. Ever since its introduction on July 1, 2017, the issue of compliance has been in the limelight, as GST’s success depends on timely compliance. 

GST calls for digital transformation. Hence, technology, specifically tax automation, has been a key factor to meet compliance requirements. The main advantage of a technology-driven system is that it is easier to detect the anomaly earlier.

GST requires a host of compliances — from passing accounting entries, to GST computation, to return filing. Apart from invoice matching, businesses need to ensure that not only do they file their own returns and pay their own taxes on time, but that any other firms with which they do business do so as well. If other firms fail to file or make payments on time, payments such as input tax credits will not be available to the businesses, and both firms could incur substantial financial losses.

Numerous extensions were filed in 2018 due to painstaking procedures and issues with online utilities. Many of the requirements for filing returns were not clear, which also led to confusion for businesses. 

The new return filing system

The GST Council has approved sweeping changes to the tax return filing system, with a simplified returns format expected to be rolled out in April 2019. This may be delayed, however, due to general elections as well as extensive testing procedures to ensure the system performs as expected. 

The draft plan of the new return filing system calls for first releasing a prototype of the software, which will be connected to a small server, followed by the release of a beta version. This beta version will be available to certain industry bodies and tax practitioners who can test the software in real world applications and look for any bugs. Many people felt that a major downfall of the previous return filing system was that it had only been tested in-house, never in an actual working environment. The GST Network (GSTN), the return filing system and IT backbone of the gigantic tax reform, was required to process as many as 3.5 billion invoices each month. Although the GST Council knew there would be a large number of transactions, the server was still not prepared to take such an overwhelming number of returns. As a result, the load and the system collapsed several times.

With new leadership in the GSTN authority, businesses throughout India are anticipating an improved IT infrastructure in 2019 that will allow for more efficient GST compliance.

Under the new system, it is likely that taxpayers with an annual turnover of more than INR 5 crore will need to file only one monthly return. Those with an annual turnover of less than INR 5 crore can opt for quarterly filing in either regular quarterly returns or the GSTR Sugam or GSTR Sahaj return.

Furthermore, the new system will require HSN details, which were not mandated until now. With this information, the government will be in a better position to analyze data and pinpoint industries where they have a very huge supply input but are not proportionately showing production output.

Invoice matching

GST had been perceived as a remedy for tax evasion. However, since invoice matching was put on hold, this purpose has not been realized so far. To date, return filing in GST has been confined to summary returns (GSTR 3B) and details of outward supply (GSTR 1).

The new return filing system as envisaged is simple, with two main tables: one for reporting outward supplies, and one for availing input tax credit based on invoices uploaded by the supplier. Invoices can be uploaded by the seller at any time during the month. These invoices can be viewed and locked by the buyer in order to avail the input tax credit. Once the invoice is locked by the buyer, it will become the confirmed liability of the seller. This mechanism will ensure that a large part of the return is automatically filled in with information from the invoices previously uploaded by the buyer and seller, thereby making the entire process less cumbersome. Once invoice matching is established in the coming year with the new GST system, tax evasion can perhaps be taken care of.

Accounting 

Businesses will need to adopt robust technology solutions to meet their end-to-end GST requirements. The process-oriented system of GST requires businesses place an emphasis on updating their accounting systems, as proper recording of transactions and uploading invoices on time and accurately will be key to compliance under GST. Because specialized software will be required, adopting new accounting technology or upgrading accounting systems might become a costly issue, depending on the size of the business. Businesses will need to invest in software that facilitates direct integration of data, as seamless integration with GSTN for information upload and download will be imperative. Currently, the emphasis is more on application service providers, ERPs, or accounting software that can take this challenge head on and make the process smoother. GST has opened avenues for companies that provide accounting solutions, and we are likely to see more such companies competing in 2019.

Change in refund filing

The government has announced that it has cleared GST refunds amounting to INR 0.91 trillion, which is almost 94% of the total refunds claimed. With the new GST refund filing system being introduced on a pilot basis in April 1, 2019, officials insist that new IT infrastructure will be superior and the refund processing will be even faster.

Compliance rating system

In 2019 we can expect the compliance rating system to finally kick in. A good GST rating is something every business will endeavour to achieve, as it will enable businesses to take advantage of various benefits including faster refunds and less scrutiny. We can anticipate that the technological setup for ratings will finally be in place in 2019.

Objectives to be achieved in 2019

The main objective for the introduction of GST was to reduce tax evasion and simplify tax compliance, with Information Technology being the mainstay of GST. GST, so far, has been a failure on both the counts. Just like the quote, “a little knowledge is a dangerous thing,” similarly, semi complete technological compliance creates conflict of interest and increases mistrust. With the extensive changes taking place in IT, we can hope that 2019 will provide us with better GST system.

Going forward, it will be essential for businesses to explore the use of technology to ensure timely and effective compliances. Presently, many companies are providing cloud-based GST compliance software. Businesses should recognize their needs and accordingly select a software that is best suitable for them.

Avalara India provides a fully automated GST compliance software in the cloud for return preparation and filing. Being a seasoned Application Service Provider (ASP), it partners with several licensed GST Suvidha Providers (GSPs) to provide businesses with end to end GST compliance.

Avalara is an experienced application service provider (ASP) and partner of authorized GST Suvidha Providers (GSPs). To understand how our cloud-based application, Avalara India GST, can help you with GST compliance automation, contact us through - https://www.avalara.com/in/products/gst-returns-filing

This whitepaper is authored by CA Priya Madrecha. Priya is a CA, CS by profession and Partner at Madrecha & Co. in Mumbai. She is a moderator at gstindia.net, a forum on Goods and Services Tax. An ex-consultant at KPMG, she specializes in indirect taxation.