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How Technology Solutions Can Help Businesses Create Their GST Framework

The GST framework implemented by the government can be embedded as one of the best principles of technology enabled tax administration structures but the small scale enterprises are struggling to digitally record their business transactions

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The Goods and Services Tax (GST) framework introduced by the Government is embedded in the best principles of technology enabled tax administration structures. In effect, central to the administration, compliance and assessment of GST for taxpayers is the operation of the Goods and Services Tax Network (GSTN) that is put in place. Based on unconfirmed data it is expected that details of more than 3 billion invoices per month, from 10 million tax payers would be uploaded. This figure is further expected to grow with the unorganised sector coming into the tax framework.

GSTN even with its robust framework is widely speculated to be unable to accept such a large load of transactions. Thus, GST Suvidha Providers (GSPs) are granted licenses to interface with GSTN and share the load. GSPs shall provide interface through which businesses can communicate with GSTN. Such interface is through a software which is being referred to as an Application Software Platform (ASP) solution.

The taxpayer community is closely watching such developments with increased concern. While large taxpayers (such as MNC companies, large cap Indian businesses, banks, etc) may have already created an ERP backbone through which transaction data can be captured, organised and uploaded using the ASP-GSP interface, many taxpayers in the mid-cap to SME sectors are not fully aligned to digitally record their business transactions. In these cases, compliances under GST through uploading of transaction level data to the GSTN portal would be a very complex task.

Technology solutions are already getting developed and offered in the market to ensure that such taxpayers are given requisite support to digitally file business transaction level data through the GSTN portal. It goes without saying that failure to upload GST returns with the transaction level data would lead to significant cash flow issues as customers of defaulting taxpayers may not be able to claim or utilize their GST credits to reduce output GST liabilities on account of mismatch in purchase versus sales transaction data lines.

Thus, technology solutions are urgently needed to address the following problems (a) converting manual or non-digital transaction entries into a digital database (b) where digitised data is available, standardise data line items to ensure the same can be auto-populated in the GST returns (c) build interfaces (such as the ASP-GSP solutions) to directly upload GST returns into the GSTN portal and (d) create reports/ interfaces that could address any mismatches of transaction level data irregularities to facilitate smooth flow of GST credits amongst a set of taxpayers in a transaction chain.

Innovation in technology and integration of artificial intelligence has the potential to minimise human intervention in the GST regime. Coupled with subject matter expertise in indirect taxation and techno-functional exposure to business scenarios, several consulting and IT firms (including outs) have designed solutions to assist businesses with their complete set of GST returns covering compliance as well as related areas of vendor reconciliation, ledgers, inter-company transaction credits and refund processing.

Eventually, above technology solutions would evolve and start developing “value added” services or automated solutions that could allow higher levels of data standardisation and automated compliances. This trend may, at its extreme, allow India businesses to achieve a world-class indirect tax compliance framework where each purchase or sale transaction is reconciled between respective returns of the buyer and seller, leading to reduced leakages and more efficient tax administration mechanism.

However, until such time our country evolves into such world-class compliance standards, it would have to structurally change the way in which it records and disseminates business transactions in order to achieve harmonious flow of GST credits in the transaction chain.

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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Amit Sarkar

Amit heads the Indirect Tax practice at BDO India. He is actively involved in GST policy formulation and advocacy with the policymakers representing various industry associations and chambers. He has 18 years of experience in the Tax Efficient Supply Chain Management (TESCM) space, including India Entry assignments for companies in sectors like ATM Manufacturing, Insurance, Banking, Telecommunications, Auto, etc.

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