4 Tasks you need to do before migrating to GST
4 Tasks you need to do before migrating GST, With the recent approval of central GST laws and the rules by the lower house and the GST Council respectively, implementation of GST in India from 1 July 2017 appears apparent.
After knowing a broad structure of GST proposed for the India, it is time for the industry to focus on transition tasks to be undertaken to prepare for any unwarranted disruption in carrying out business.
Tax incidence is expected to be once on the end customer, all taxes at different legs of the supply chain are expected to be credible. From consumer point of view, the biggest advantage is expected to the reduction in the overall tax burden and embedded tax costs on goods, which is currently estimated at 25%-30%.
Therefore, assessment of impact on revenue, pricing of products, costing of goods/services to be procured, working capital, availability of credit of GST etc. is quintessential to make any change in tax driven processes such intra-state sale vs. inter-state sale, transfers to own depots without payment of tax, in-transit sale, high sea sales etc. and reduce costs of operations.
GST is also expected to allow credit of certain items, which are not available under the current laws such as taxes paid on input services and cannot be adjusted against output sales tax liability etc. Therefore, this assessment of the business processes would also enable businesses to make procurement strategies to optimize credits.
Supplier and customer contracts and business terms to be reviewed for necessary amendments to enable charging of GST once implemented. This will help manage the transition to GST and ensure recovering of any additional tax impact
It would be of utmost importance to identify the accounting, reporting requirements under GST in order to assess is the current system needs to be entirely revamped or can be managed with modification. Some of the major changes proposed under GST regime, as compared to the current indirect laws, warranting a major change in the tax accounting and reporting are discussed below:
- There is a major change in the taxable event it stands under the current indirect tax laws (such as manufacturing for levy of central excise duty, a sale of goods for state sales tax, provision of service for service tax etc.). In the upcoming GST regime, the taxable event would be ‘supply’ of goods or services in an entire value chain.
- Central sales tax ”(CST)” incurred on the inter-state purchase of goods at 2% (on Form – C) or in the range of 5 to 15%, not eligible as credit at present, will be abolished and replaced with the Integrated GST (expected at 18%) which is creditable. Adoption of destination based consumption tax principle, which means tax would be levied at the place of consumption of goods or services or both. Therefore, for every transaction, we need to ascertain the state where the supply is being consumed. Specific rules for the place of supply for goods and services have been prescribed in the proposed IGST laws
4) Technology changes to support GST compliance once implemented
Considering that the GST structure proposed for India has been envisaged to the administered through a robust information technology platform on account of rigorous compliance requirements, businesses must assess of technology changes required to facilitate GST compliances.
All existing indirect tax functions being supported by technology such as the tax structure, tax computation and tax payment, tax incidence, availing credit and utilization etc. of existing businesses may require modification to align with GST structure. Some of the key areas which may need technology changes maybe:
a. Particulars to be included in invoice and recipient vouchers, purchase orders, bill of entries etc.
b. New general ledgers to be created to meet reporting the requirement under the GST regime c
. Changes in vendor master to include GST registration number, other details of vendors as required.
d. GST return formats are the differences as compared to the various returns under respective indirect taxes at present.
Systems need to be updated to incorporate new return formats and details as prescribed.
Above would facilitate a transfer of eligible credit from current regime to the GST regime and file the first GST return and make GST payment as per the prescribed timelines. Considering date of implementation as 1 July 2017, taxpayers who haven’t started preparing for the transition will need to act fast on the above to ensure GST compliance by 1 July 2017.
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