A small-scale manufacturing company with operations in only one state will have to file a minimum of 37 returns instead of the current 13 once the goods and services tax (GST) goes live from 1 July 2017, increasing work for industry, accountants and banks, according to an IndiaSpend analysis.
With the deadline for the GST less than a month away, finance professionals, banks and industry seem unprepared for the challenges of implementing the one nation-one tax idea, the work towards which began 13 years ago. K Raghu, former president, Institute of Chartered Accountants of India, said:
The Indian Banks Association – a body that represents 237 banks – has informed a parliamentary panel that their members were unprepared to implement the new indirect tax regime.
With the government announcing GST for four tax rates – 5%, 12%, 18% and 28% –industry will face implementation challenges that include system upgrades, manpower training and understanding new taxes. Every transaction – sale or purchase – will now have to be recorded online to benefit from the tax paid earlier.
India is implementing a dual GST with the centre and states together levying it on a common tax base. “The GST to be levied by the centre on intra-state supply of goods and/or services would be called the Central GST (CGST), and that to be levied by the states would be called the State GST (SGST),” according to this list of frequently asked questions, published by the Central Board of Excise and Customs (CBEC), the central body of indirect taxes.
A dual GST adheres to the constitutional requirement of fiscal federalism, since both the Centre and the states have the power to levy and collect taxes.
“The central GST and the state GST would be levied simultaneously on every transaction of supply of goods and services, except the exempted goods and services, goods which are outside the purview of GST, and the transactions which are below the prescribed threshold limits,” the CBEC FAQ noted.
While the location of the supplier and the customer within the country is immaterial for the purpose of CGST, SGST would be charged only when the supplier and the customer are within the state.
An illustration from the FAQ published by the government: Suppose the CGST rate is 10% and the SGST is 10%. When a wholesale steel dealer in Uttar Pradesh supplies bars and rods to a construction company within the state for, say, Rs 100, the dealer would charge CGST of Rs 10 and SGST of Rs 10, in addition to the basic price of the goods..
“Of course, he need not actually pay Rs 20 (Rs 10 + Rs 10) in cash, as he would be entitled to set-off this liability against CGST or SGST paid on his purchases (say, inputs),” said the FAQ.
“We have a system today across a majority of small units where an accountant comes (in) once a month, makes vouchers and inputs details for taxes,” said Raghu. “That will have to end now because we are moving to an online, almost real-time system that will need a lot of manpower.”
The finance industry is ready by training its professionals, said Raghu, who predicted many job opportunities over the next 5-6 years. But, as he added, it would take at least 12 to 18 months for the system to “settle down”.
India’s industry and its banking system will have to change systems, train personnel and accept the extra workload for the new taxation system. The banking system has clearly said it is not yet ready. Industry is ambivalent.
Tally accounting software is widely used by Indian companies. The company is waiting for the GST rules to be finalised so that it can roll out its GST software for Indian companies, the Economic Times reported.
The industrial sector, especially the services sector, is waiting for more clarity on tax rates, processes and the time frame for the systems to settle down. “What we still don’t know is which tax slab we fall in,” a marine service provider operating in Goa told IndiaSpend, on condition of anonymity.
(This article has been published in an arrangement with IndiaSpend.)
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