The Goods and Services Tax (GST) is supposed to be the biggest reform in India’s indirect tax structure since the economy began to be opened up 25 years ago. It was first recommended in the year 2004 by Kelkar Task Force on implementation of Fiscal Responsibility and Budget Management.
Objectives of GST:
- Subsume all indirect taxes at the centre and the state level
- Reduce the cascading effect of taxes on taxes
- Increase productivity and transparency
- Increase tax-GDP ratio
- Reduce/Eliminate tax evasion and corruption
So, how GST differs from the current regimes and how it will work?
Currently, everyone in a business transaction (includes manufacturers, whole-sellers, retailers & purchaser) has to pay variety of taxes when they get engaged in a transaction of an item. But, once GST comes into effect, it is expected that all central and state level taxes and levies on all goods and services will be subsumed within an integrated tax having two components: a central GST and a state GST. The end-consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
As mentioned by the Ministry of Finance, “GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.”
How is it important to the economy?
- The GST regime seeks to subsume the all the taxes levied by the Central Government and the State Governments into a single one.
- Central Taxes: Central Exercise, Service Tax, Central Surcharges, Central Cess.
- State Taxes: VAT/Sales Tax, Entertainment Tax, Luxury Tax, State Taxes, Cess)
- States and the Centre will have concurrent power to levy taxes. As of now, Centre mainly collects Service Tax, while the states tax the retailing process. With GST their roles will be extended.
- Centre Government will levy Integrated GST (IGST) on inter-state supply of goods and services. On intra-state supply of goods and services, the Central Government will levy Central GST (CGST)
- State Governments will levy State GST (SGST). Import of goods will be subject to basic customs duty and IGST.
- Taxes will be on consumption and not on production.The final consumer will bear all the taxes, and this tax will have Centre’s as well as the States’ share in it.
Getting ready for GST
In view of recent developments, it appears that the Government is set to meet the target of implementing the GST with effect from 1 April 2017. Introduction of GST will necessitate review and change of tax positions, supply chain, ERP system, business processes and accounting, among others. GST is a tax trigger that will lead to business transformation.
Hence, as we approach GST implementation timelines you need to be proactive to set in place appropriate processes to handle the change and be GST ready.
- Understand key areas of impact in your business
- Prepare the transition roadmap and align relevant teams
- Change in business processes to align to the new tax regime
- Continually track policy development regarding GST and update proposed scenarios
- Identify any areas of adverse impact and prepare contingency measures
- Identify issues and concerns needing representations to the authorities and develop a strategy for effective advocacy
- Update of ERP
- Training of all personnel on new processes
Renegotiate the pricing with vendors, if needed
- Alignment of all major contract terms and tax clauses with GST
- Review existing contracts with vendors to analyze the impact
- Assisting in maintenance of requisite statutory registers of supply and procurements, input credits
- Timely filing of monthly and annual returns
- Identifying impact on financials, working capital, credit chain, concessions, etc
- Making requisite changes to ERP modules, MIS reports, etc
- Training sessions for employees on the changed scenario, record keeping, integration & compliance
- Our team comprises specialized & experienced professionals and advisors, including former government officials
- We maintain a strong working relationship and have access to various government departments and agencies
- An all-inclusive collection of service offerings to help ensure smooth transition across functions (tax, IT, supply chain, accounting)
- With a diverse clientele, our in-depth experience cuts across multiple business segments including manufacturing, service and trading