How GST Impacts Your Business and How to Be GST Ready?
The current indirect tax system in India is a patchwork of central and state taxes that overlap. About 34% of the total tax collection in India comprises indirect taxes. It is very high when compared with developed nations. Too many layers of indirect taxation also make it difficult to conduct business seamlessly across various states.
The Objective of GST
The Goods and Services Tax (GST) that is to come into effect from July 2017 is an overhaul of the current taxation system and a significant tax reform. GST aims to eliminate the existing tax anomalies. It is a step towards rationalising the current taxation structure by replacing it with a single and unified GST. The objective of the GST is to simplify tax administration and compliance and minimise its cascading effect.
Also Read : GST in India – All You need to Know
Further, by minimising tax rate slabs and thwarting unhealthy competition among states and bringing more unorganised business owners in the organised basket, the Government intends to increase tax base. Migration to GST will require preparedness of businesses as a whole and not just the finance or legal and taxation teams of businesses to up their act. Needless to say, business owners who are quick to assess the impact of GST on their businesses and make the most of the opportunity of a changeover will have a definite advantage over competition.
Here is 4 Step Action Plan for Businesses aiming to get GST Ready:
Assessment of GST Impact and Strategizing:
The major change that GST brings is that it is applicable on supply and the place of supply will determine both the incidence of tax and the process of claiming input tax credit. As a business owner, the first thing you need to do is carry out an impact analysis of GST on your business. With the implementation of GST, all your processes related to cash flow management, pricing, legal contracts and business location may have to be realigned.
Further, your current IT systems that are aligned to capture quarter or half yearly data must be reprocessed as information will now need to be submitted at a monthly frequency at the invoice level. Next, you will need to engage all stakeholders in your business processes that include tax experts, legal team, accountants and IT teams to come up with an effective strategy and costs involved for GST accounting and its implementation.
Registering as A GST Taxpayer:
This is an essential step that you must get out of the way as soon as you can. Do bear in mind that the registration process is lengthy and requires a fair bit of documentation. Further, your GST registration will depend on whether you are an existing VAT and service tax payer or need to register afresh. Read the enrolment requirements carefully and keep all the relevant documents handy before you initiate the registration process.
Also Read : GST – A Complete Guide
Revamping ERP/Accounting Systems:
Implementation of GST will be based on the destination of supply of goods instead of the earlier regime where value added tax (VAT) was applied at various points along the supply chain. To comply with this, your enterprise resource planning must go through a complete makeover, be it a purchase order, expense recording or an invoice generation. Also, while filing returns, companies must state their eligibility for claiming input tax credit and provide details of original or revised invoices as deemed necessary. Therefore, your ERP and accounting system need immediate attention in order to be GST ready to be able to provide all additional information.
Be Compliance Ready:
Once you can overcome the teething problems related to GST migration, compliance will be a monthly affair. Overall, reconciliation of purchase and supply data on a monthly basis will improve your business efficiencies.
The transition to GST may seem like a humungous task from a business standpoint initially, but with the right support, strategy and tools, you can migrate to GST and gain from in the long run.