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Column: Compliance Issues

“The government should have given six months after finalisation of the law”

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India inc., to begin with, may not be fully ready for GST. The major reason behind this is that the laws are still in the process of coming out. Some laws came out last week, and some are still coming out, making IT configurations more complex, as they are dependent on the law. Even the enterprise resource planning (ERP) vendors will be able to release their final GST patches after the final laws come in, which then need to be configured with the ERP of companies.

The draft model for GST law came out in June last year, and the final version two months ago. But the notifications and rules are still being released. These things have a very significant role in the overall tax structuring and configuration of the IT systems. For example, the import of goods comes with a basic custom duty and custom cess. Under the new law, there is still no absolute clarity on whether the cess would be applicable or not and how it would be calculated.  

Amongst the worst hit, service sector tops the chart as it has to align itself to decentralised registration and compliances. Micro, small and medium enterprises (MSME) would be facing a tough time. For them to understand and comply with the new law would take some time. The manufacturing industry would be comparatively less impacted as, even currently, it has de-centralised compliances and is already registered in various states for VAT purposes. Further, it is easier to track the movement of goods and determine the taxability. They are less impacted, but have not completely negated the challenges.

The government wants to implement the new law from 1 July; it does not want to defer the same to September due to the onset of the festive season. Though, it realises that no matter what time of the year GST is introduced, some disruption is bound to take place, so it might as well go ahead with it and let the law settle gradually over time. But if we compare with Malaysia, the law was made available 15 months before the introduction of GST!

Ideally, the government should have given at least six months after finalisation of the law. The companies would then have been able to analyse the new law, digest it and apply the same in different scenarios and configured their IT systems. Since the compliance needs to be done on the GSTN, there should have been detailed user testing both at the GSTN end and at the industry end.

Other than all the legal issues, if the companies are not able to reconcile their credits electronically on the GST network, they would lose the said credits, which would result in huge cash flow issues. You would still have to pay tax on the sales you are making, but on the purchase side, if you are not able to reconcile, you would not get the credit. This could be the biggest common problem for everyone moving into GST. The bigger companies might be able to do all the compliances, but they won’t get away from facing the brunt of the new law, if the whole ecosystem and the supply chain including vendors and distributors are not fully complaint.

Having said all this, I think the government has achieved a lot. Getting all the states on board, and for the GST council to be able to get consensus on almost everything after seven years, is a major achievement. Had the industry got a little more time, it would have been an ideal thing. But 1 July it is, and it’s a matter of prioritising for the companies now and focusing step by step, to let the new law seep in.  

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Abhishek Jain

The author is a partner at EY

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