SMEs: Preparedness and consultation are key for a smooth transition to GST

A Mumbai-based proprietorship concern that supplies sundry office stationery items, including on-call customised products for big companies, had never paid tax until two months ago. A seamless operation run by brothers who collect their bills only on month-ends, it enjoys the privilege of being a trusted service provider for many including a large private bank. But come July 1, the proprietorship was registered and ready to comply with the new goods and services tax (GST).

The stationery supplier, which prefers anonymity, is an example of how small businesses need not falter under the new tax regime even as it has increased the burden of compliance. Before GST came into force, the proprietor of the firm— which has a top line of Rs 27-28 crore — approached a chartered accountant to help with registration. It had all the required documents in hand, including on company financials for the previous three years. Following registration and after confirming with the consultancy that a Tally software  suite would suffice for the purpose of submitting GST invoices from July 1, it has been a smooth transition for the proprietor.

Another Mumbai-based small businessman who runs a travel agency and provides cabs on hire, met with a contrasting fate. The company owner, who leases cabs to various corporates, had never paid taxes earlier and underestimated the enforcement of GST, thus failing to register in a timely manner. Several corporates started to insist on a GST bill after July 1. On failure to provide the bills, within the first week of July a couple of the agency’s clients chose to opt for GST-compliant suppliers instead. Even though the travel agency registered later in the month, it lost clients and allowed competitors to gain an edge by offering freebies to companies.

M S Mani, senior director, Deloitte Haskins and Sells LLP, explains that the small and medium enterprises (SMEs) which have successfully transitioned to a GST system reflects how the government machinery has been helpful in terms of its outreach on what the new tax is about. Second, contrary to the perception of Indians being non-compliant because of it being a fair tax and due to the input tax credit it provides people are showing willingness to be compliant. “As far as GST is concerned, the success and failure of the lowest common denominator would determine its own success and failure,” he adds.

Unlike big companies that have large IT infrastructure and consultants and are demanded by their boards or audit committees to be GST-ready, a proprietor owner or partner is the decision maker in smaller companies. Also, larger companies can recovery from a brand hit by seeking other partners whereas smaller companies cannot afford to lose the typically handful of clients they cater to.

“Small companies need to consult with people who know the subject, go through the notifications the government keeps publishing in the form of FAQs, and in today’s scenario after demonetisation and the government decision to bring together organised businesses more, they should keep close tabs on rules and procedural changes,” adds Mani.

Tejas Goenka, executive director, Tally Solutions, says the company has been part of a GST journey for several months. In the months leading up to GST, it held over 5,000 events to educate businesses. This was followed by over 2,000 camps to get GST-ready following the launch of Release 6 (enterprise resource planning software). The company has been regularly conducting events, webinars and providing businesses with video tutorials on what they need to consider to get GST-ready. “Being such a big change for the country, we think this is a journey we need to walk together and that is what we have been doing.”

One of Tally’s clients, Delhi-based Siyaram Brothers, is an over 90-year-old company that sells automobile parts to retailers across India, with six branches in New Delhi and UP.

Nitin Gupta, its owner, says the transition to GST has been smooth. The company merely had to download the Tally GST accounting software version and change the settings as per GST, and within a day it was ready for fresh billing. “The market was obviously very down because small retailers who buy from us were skeptical. So, business did suffer and sales were low. But we were quite clear about the rules, so we didn’t face any problem,” he adds.

As against raking in monthly business of about Rs 8 crore, in the months of June and July the company managed to touch around Rs 5-5.5 crore. The Rs 100-crore company acts as distributors for various companies, and runs a joint family business. It operates in the manner of small businessmen where one person handles one or two branches, so distribution margins are not very high. “We don’t have any ERP or SAP, but operate like small traders and use Tally only. Obviously we had been reading about GST in papers to brush up our knowledge.”

Besides training its staff on GST, the only problems it faced were from customers — retailers who don’t want to buy stocks in good quantities — whereas vendors are mostly multinationals and fully compliant.

On its part, the company says its is trying to educate retailers, but admits that most of them are close-minded and listen to their chartered accountants only. “They were all used to working without bills, and weren’t not computerised, so they are facing a cultural change but a lot of people are now buying into GST. In another month or two it should settle down,” Gupta says.

On the other hand, for CA firm Mittal Sandeep & Associates, which does business of Rs 100 crore annually, business has grown but it has faced practical problems. “Compliance levels are very high in GST with separate dates for TDS, IT, etc. although there have been extensions. We haven’t faced any problem from the point of view of compliance or software. We are satisfied with the Tally software as it fulfils requirements regarding invoicing, etc. But the volume of work, and secondly problems with the GST website have caused delays,” says Sandeep Mittal.

He feels maintaining existing clients and increase in staff strength might be required to meet challenges.

Critical questions

• How early did your business start preparing for GST?
• Did you take government caution seriously or with a pinch of salt? Being overconfident of surviving in any business can be counterproductive
• Did you take early steps, and speak to your customers and vendors about readiness?