Thirteen Reasons Why - Part 3

There are speculations that the roll out date for GST will be pushed to September 16. One should, however, not leave it on time and take steps to prepare one’s business ventures for the new indirect tax law. If the previous eight weren’t enough to convince you, here are a few more.

  • Registration: GST is unique in many aspects so why should the registration process be any less unique? For the entities who have businesses spread across the country, a single-Pan India registration will not suffice. Individual registrations would be required in each state. That’s 29 states and 7 union territories (don’t forget Telangana people). If you have been procrastinating with regards to registrations, we sincerely hope you realize how serious the outcome could be for your business. The government has re-opened the registration window for 15 days. Presuming you miss out on this one, carrying out your business would be difficult post July 1st. Get going!

 

  • IT System: There are lot of firsts in the GST system. For instance, this is the first time both the governments’ tax administration will work under the same law. It’s also the first time the Central and State government are sharing a common Infrastructure portal. In alignment with PM Modi’s Digital India dream, everything under GST is going to be computerized. All filings, communications and payments will be done through a common online portal – GSTN. Therefore every establishment, irrespective of its size and the goods/services provided by them, needs to have the appropriate technology in place.

 

  • ERP Migration:Enterprise resource planning (ERP) is the integrated management of core business processes.As GST stabilizes, there will be an increased strain on tax and IT teams to continuously update,test and re-visit scenarios as the business processes evolve. A major task is data migration. Till everyone gets a hang of goods and services tax, there would be a need to plan, implement, update and review ERP systems to get them ready for GST. The reporting framework and workflows pertaining to the current indirect tax regime will become obsolete. Obviously, new reports need to be designed as per the GST law. It therefore becomes imperative for an organization to examine and identify the impact areas of GST implementation.

 

  • Contract Analysis: The new indirect tax law is going to change how new contracts are formulated and carried out. However, existing contracts will also require alterations to factor in GST. Under the current law, works contracts consist of three types of taxable activities. Two of these are the supply of goods and services. If a new product is created in the duration of the works contract, that becomes taxable too. GST Schedule 2 has removed the confusion regarding the tax treatment in the future. Works contract will be taxed at the point of service. However, Input tax credit will not be available in certain situations. Furthermore, no abatement has been mentioned. Service contract tax rates will also differ depending on who provides the raw material for executing the contract. For instance, if an electrician fits a light bulb, it could be taxed differently if the bulb is brought by you or him. (No, this doesn’t mean you can carry your own plastic to the surgeon. It doesn’t work like this.)

 

  • Inventory Management: Inventory Management is an essential task if one wants to practice effective cost control. Apart from procurement and sales, importance has to be given to management of inventory while transitioning into GST. Warehouses are an integral part of every supply chain and GST will lead to inventory efficiency.There would be lesser stocking points (fewer warehouses) resulting in lesser stock outs.A particular business needs to focus on the dispatch of inventory, meeting customer needs during transition period, tracking of goods lying with job workers and agents, and the stock transfer of goods. Certain goods are currently taxed at lower rates but will be subjected to higher GST. The demand for such goods may increase during the transition phase. As such there would be a need to procure these goods before implementation of GST. It’s a good time to demand quantity/trade discounts from suppliers.

 

When 84 lakh entities are expected to switch to a new structure, chaos is inevitable. As the learned ones say, Prevention is better than cure. One should take the various points into consideration and prepare themselves in the time that is left for the GST implementation. Hopefully the casualties can be minimalized.