The GST is the largest Tax reform in India and its effects on businesses will be felt for years. It will improve margins for manufacturers and make it easier for service providers to lower costs through lower taxes. Overall it is expected to increase the GDP by 1% which will add crores of rupees to the economy.
The efficient, transparent, and cheaper future requires all businesses to pay a cost, which is the ability to report all transactional data to business partners and the government as required. The GST requires an asynchronous submission of information where transactional data must be submitted to the government along with providing the data to the counter party. Additionally, the counter parties must validate the transaction information to secure the input tax credits. This is requirement completes the cycle to create a self-enforcing GST.
A business must be able to report and reconcile the transactional data to be compliant and secure input tax credits. Failure to be complaint with the new regime will cost businesses time and money and the way to transition is reinvent the tax process and bring Tax, IT and Finance teams together.
Tax departments have an opportunity where they can change existing processes to be more efficient. For example, a tax department should use an external tax compliance solution which can enable the tax department and external tax advisors to collaborate on the same data. These solutions can link various source systems to provide the accurate compliance required under the GST.
Tax teams face the challenge of compliance which requires them to work through 37 filings annually and depending on the size of their business requirements to accurately classify, calculate and report hundreds of different transactional possibilities.
IT departments will be challenged by this regime change because multiple source systems will need entire tax procedures revisited and there will certainly be requirements to change and manipulate master data across the entire business. IT teams will be required to create new data extracts as the regime changes and maintain those extracts as time goes on.
Finance teams will be looking at the bottom line and will want the changes that need to occur to be cost effective and in the long run save time and money.
A technology solution which you select should help support the goals of each of the three groups listed above. It should provide the ability to help a tax team file, reconcile and manage different tax returns and allow the tax team to collaborate within and outside the organization. The same solution should be easy to manage and allow the IT team to reduce its workload in terms of creating and maintain data extracts, tables and other connections. The technology solution should help your business manage the regulatory change and allow you to spend less time dealing with tax and regulatory change.
The solution should be able to update and archive itself when the tax laws and rules change. For example, today it is required that many B2C transactions can be summarized at a state-wise level when below 2.5 lacs, how would a business respond if the threshold decreases to 2 lacs? Now the tax team has a point where it should think about maintaining two classes of extracts, reports and compliances.
The questions to ask are:
- How long will it take the tax team to research the change?
- How many hours will the requirements take to finalize?
- Will it be ready in time for the implementation date?
- How many IT resources?
- How do we maintain the old mappings and new mappings simultaneously?
- Are there systems which we cannot change and need to think of something different?
Now this same change from an IT perspective can be just as difficult because it is a required change which should occur in the impacted systems. The limiting step for the IT team will be getting the required information from the tax team and then the questions will be:
Technology is not here to replace the discussions between the parties on how a regulation impacts a business, it serves to create the framework which allows the change to be managed.
by Anil Kuruvilla.
He is an international Taxation Expert and Chief Content Officer at Adaequare (Parent company of Udyog Software).