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GST Implementation and Compliance

GST Implementation and Compliances – Are you ready

1st July or 1st September 2017 – India’s GST is now a certainty.  But are the stake holders ready; their IT systems ready and above all have all the stake holders including the Central Government and State Government really comprehended the new law; new rules and the compliances and the compliance cost and intricacies attached with the law and rules now being finalized?
 
The business will have now to deal with 7 tax baskets – five for goods and two for services.  Above all the Cess if applicable besides TDS; Reverse Charge and TCS ( e commerce only).
The GST council has finalized four rate slabs—5%, 12%, 18% and 28%, besides deciding to impose a cess on certain demerit items and sin goods like tobacco, cola, luxury cars and pan masala. Foodgrain is likely to be zero-rated as the government looks to reduce the inflationary impact of this new tax regime on the common man.
Most of the services are expected to be taxed at 18% with a few services being taxed at lower rates in line with the existing abatement rates in service tax.
 
Inching India closer to a unified tax system – One Nation, One Tax – Goods and Services Tax (GST) Council on Friday tentatively approved four sets of rules, such as composition, valuation, input tax credit and the transition process and finalised rest five others as well, aiming at the rollout schedule of the GST regime from July 1.
 

Let’s take look at the basics:

 
Service Sector
Anything other than goods as defined for which consideration is received or paid in the course or and in furtherance of business is a Service.  And service sector will face two basic GST rates – 12 percent and 18 percent.  Mostly, 18 per cent (up from 15 percent as of today) and many services that enjoyed exemption shall now be taxed.  My Take is that difficult days are ahead for service sector.  Centralized Registration facilities gone, get registered in every State wherever services need to be performed as per law, if GSTR-1, 2 and 3 are taken as independent and separate returns, then in my view, the compliances are up from 2 at present to 37 including the Annual Return and in case of Input Service Distributors (ISD) and TDS deductions; another 24 returns.  ABOVE ALL THIS MUCH FOR EACH STATE SEPARATELY. GST My-take is that the existing set up of people (based on my experience with big industrial houses) is simply not up to it; the service sector, especially the big players in India, will require a separate set of dedicated team to show these compliances; if they have to save themselves and their companies from very serious provisions for Audit; Investigations, Prosecution and Section 73 and 74 of the Act along with numerous penalty provisions.  Scary; but needs to be done.  Get ready for this on ASAP basis.
Above is based on assumption that final GST rules will not change the monthly returns to quarterly returns? (Which My Take feels is likely)
 

Manufacturers

What they to today?  They file Excise, VAT and CST returns and for each location separately.  Hence, they will feel the pinch a little less.  They might gain a bit; factory level compliances ( hitherto made separately for excise, vat and CST might get consolidated into one GST Return).
Wait before your jump to conclusions? Manufacturers with a turnover of 1.5 crore per year were exempt from excise duty registration; now with the limit coming down to 20 lakhs, they are up for grab for the State and the Central authorities in GST.
Composition schemes, may be up to 1 crore; is less lucrative as the composition dealers will not be able to pass on the ITC benefit nor claim ITC nor issue Tax Invoices?  Who will then deal with such manufacturers?  The Government has therefore framed Law and the Rules in such a way that the tax exemption up to 20 lakhs is negatived by the law and the rules framed. Of course for composition dealers the return is quarterly?  My Take is that even for manufacturers the composition scheme will be a non-starter due to the numerous restrictions placed under Section 10 and the new Rule finalized two days before.  It is simply a non-starter.
 

Traders

They are liable for registration in each State; they already file VAT and CST returns.  But now they may have to deal with two authorities – State and the Central authorities.  They will face duplication of proceedings.  Composition scheme – may be very less lucrative for traders also except for Mohalla grocery shoppers with low margins.  Even a limit of 1 crore, if adopted by the States, may not yield much results unless the retailer is predominantly supplying his goods or services to the consumers only.  Of course trading community will face a heavy compliance cost.
 
And E-Commerce operators will go through TCS provisions of 1 percent and corresponding complexities and compliances and further ensuring that their suppliers get credit in time.  This is really a very onerous task.  Few people asked me whether this could be challenged before Courts as a discriminatory law; my answer was that Courts will not interfere with such a law even if this could be distinguished from TDS for infra sector provisions. My Take is the composition scheme – much hyped – is really not a very useful as the traders who want to expand their business would not like to remain outside the seamless credit chain and if they do; their businesses may not expand much and further their businesses will be restricted to the specific State only as they cannot make interstate supply of goods etc.
 
 

Input Tax Credit Mechanism

One Nation; One Tax and credit for all taxes paid – is the GST USP that the Government has been trying to propagate.  My Take feels this is an Illusion and nothing more than this.  Let us consider it from a legal angle.
ITC shall be online matched and mismatch shall be subjected to tax and interest for the recipient. It is a very torturous compliance for the recipients. The businesses will have to keep track of mis-matches; instantly tally and reconcile with their version of books of accounts; their accounting treatment and above contractually and legally dealing with the vendors for such taxing eventualities. The businesses will have to ensure they do not deal with vendors of straw; they deal with reputed and tax compliant business houses or face the heat – both internal and external.  The stake is very high.
Before I conclude; India’s rural and unorganized traders, manufacturers, service providers will not be able to do business unless they come in GST network.  It is simply not possible.  With cash restrictions in place and with no ITC available unless the businesses possess tax invoices; simply this sector is out notwithstanding the taxable threshold of 20 lakhs. With tax schedules still to be finalized and to be announced a few days before the appointed date; businesses will have no time to plan their inventories and manufacturing scales.
 

A word on New Rules put in public domain

GST Council approves five amended rules. This is now the last lap of discussions. Once the rules are finalized, the committee of officials will work on the fitment of commodities,
The council finalized five sets of rules relating to registration, refunds, returns, payment and invoice debit and credit. It also gave its tentative nod to four more sets of rules dealing with input tax credit, valuation, transitional provisions, and the composition scheme. These set of rules will be finalized after receiving industry feedback.

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Profile photo of CA Rashmi Jain CA Rashmi Jain

New Delhi, India

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