GST implementation: July 1, 2017 is only the beginning

The challenge could be in getting vendors & supply chain partners compliant in time, says K Shankar

K Shankar, CEO, Feedback Business Consulting

Last Updated : May 04 2017 | 3:59 PM IST

A disillusioned, distant and doubtful journey on GST began in the early months of 2015. Skeptics felt the journey could end well before the destination. Politics ensured that there were more disruptions than debates on the GST bill. They tossed it between houses before consensus was built and the GST was finally passed into law in March 2017. The roll out date has been fixed for July 1.

While all the skeptics and the politicians tried to pull the bill in different directions sighting inadequacy of coverage, imbalance in state and central tax revenues, future of large city tax revenues, etc. corporate India always pushed for the bill and wanted it implemented as early as possible. During the first debates in 2015, a sense of positivity began to emerge in the industry and a lot of consulting began around GST, its impact on the current internal and external tax organisation, the new touch points that would emerge in tax management and finally the law that would be the final statement on the GST.

Most large manufacturing companies across sectors such as FMCG, white goods, auto & auto ancillaries, etc began planning a parallel tax management system when the prospects of GST becoming a reality emerged in August 2016. They accelerated their spadework in time. All they wanted to know was the law and the tax rates. Services sector however began the process a little late because they needed a far sharper understanding of the law and the applicable impact thereof. They certainly will have to make a gasping sprint to meet the July 1 deadline.

Further, most large companies work on ERP (Enterprise Resource Planning). Now that the law is known, product/service and tax slab is known and the assessee liabilities are defined, all it will take for them is to get the software tweaked with the new inputs. The challenge, however, could be in getting the vendors and supply chain partners compliant in time.

MSME and the unorganised sector readiness for GST roll out on July 1 will certainly be doubtful. Most firms will have begun their thinking on the new compliance after GST was passed into law. The challenge will further get compounded because:

A new tax regime will also require new investments for compliance: Under GST, all firms irrespective of size and sector would have to move to a new and more advanced digital technology to facilitate audit reports, tax credits and payments among other things. This will mean investments. Tax authorities are actively engaging with the sector to ensure their readiness for the new tax policy.

Low awareness on interpretation of how tax will be treated across the chain: Large companies have begun educating their supply chain partners on GST compliance. The vendors are however concerned about how input taxes will be treated. Unorganised businesses that operate on cash and deal with products like metal scrap, waste items, etc do not know how to comply with the GST from an input tax perspective. This ‘who will bell the cat’ equation needs a fast clarity and resolution among smaller companies.

Uncertainty on the future of protectionist tax policy: Smaller companies with revenues less than Rs 15 million are exempted from paying excise duty. They will now be liable to pay full tax under the GST regime. This may make their products and services less competitive. This will mean smaller companies will be required to shrug out of their insulated existence and face the single tax regime. This will make them seek deeper advise and may delay their readiness.

The Finance minister expected ‘teething problems’ in the adaption of GST. He categorically mentioned it when the last voices on GST were heard in the upper house. The GST bill itself will require 2 years to become perfect by addressing all its short comings. The MSME will in some sense have that much time to pace itself on complete GST readiness.

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K Shankar is the CEO of Feedback Business Consulting