JUNE 19, 2018

By Pritam Mahure, CA

THE experience of almost a year since introduction of Goods and Services Tax (GST) indicates that GST is constantly evolving in India.The initial days of GST are always challenging for organizations as everyone is learning and there is no precedence for applicability of GST.

Given the aforesaid, the taxpayers constantly need to introspect and recalibrate their approach to meet GST obligations as well as gear up for the future GST developments.As GST will celebrate its first anniversary in next few days, this article discusses about five key aspects which should be on the top of the mind of the taxpayers.

(I) Seek clarifications

GST regime, being self-assessment regime, entails the taxpayer to take tax position on day to day business transactions such as whether GST is applicable on supplies, whether the transaction is intra-State or inter-State, whether the transaction will qualify for zero rating, whether reverse charge mechanism is applicable etc.

Given the numerous business transactions, taxpayers need to take tax positions at the drop of a hat. The matter gets complicated if taxpayer needs to discuss the tax position with their customer or vendor as in such cases,the tax position could be adopted on commercial rational than a legal rational basis. Over a period of time, such decisions get accumulated and the cumulative risk of adopted tax positions may turn out to be substantial.

Fortunately, the option of seeking clarifications, through a mechanism called as ‘Advance Ruling' is available.Thus, to minimize the risk exposure its advisable for taxpayers to identify the big ticket items at the earliest and seek clarifications. In the long run, this step of seeking clarifications will certainly prove to be a step in the right direction and save the organization from penal consequences.

(II) Optimize GST credits

Tax invoices are the documents based on which a buyer can to claim input tax credit. Tax invoices are issued by vendors and thus it is not uncommon to observe in-complete tax invoices or tax invoices with incorrect details (such as missing name or registration number, incorrect address etc.). Credit availability on invoices with incomplete contents is always disputable. Further, in case the vendors are not uploading the invoices then without invoice matching the credit is likely to be denied.

Additionally, credit availability on employee-related expenses such as car for employees, foreign trips, medical insurance could be subject matter of scrutiny by authorities. Alternatively, taxpayer may inadvertently sometime miss on claiming eligible GST credit.  

Claiming ineligible credits leads to risk of denial of credit along with imposition of interest and penalty whereas not claiming eligible credit leads to unnecessary cost for the organization. Thus,  it is important for taxpayers to run a sanity check of GST credit to ensure that in-eligible credits are not claimed and eligible credits are not missed.

(III) Review ERP systems

The data for preparing GST returns are expected to be generated from the ERP or accounting system. If the ERP system is able to generate the requisite details for GST returns then the risk of incorrect GST returns reduces.  However, although it's been eleven months since GST has been implemented, still quite a few organization's ERP or accounting systems are yet to be configured and thus, requisite GST reports or details are not available easily.

In many instances, taxpayers compile the details for GST returns on manual basis in-spite of having an ERP system. However, the risk of missing crucial ledgers or numbers is high in case of manual preparation of details for GST returns. Therefore, it is crucial to assess the current ERP system to evaluate and ensure that the requisite reports, as required for preparation of GST returns are generated from the ERP system itself.

(IV) Gear up for GST audits

Taxpayers in India have moved from Phase I (pre-GST) to Phase II (GST initial returns), to now, Phase III i.e. regular GST compliance and GST return filing. It is pertinent to note that the thrust of this Phase III should be on documentation and maintaining prescribed GST records.

Documentation and maintaining prescribed GST records is critical as in days to come, taxpayers may face GST audits. Similar to the erstwhile VAT / tax audits, GST regime also prescribes audit by professionals. Thus, going a step ahead of audit and documentation, taxpayers could consider preparing customised GST manual for their own business which should contain all the tax positions adopted, processes followed and the basis of preparation of GST returns. This GST manual will be handy during audit and could also be used for GST training for new employees in the organization.

(V) Track GST developments

GST is constantly evolving. Further, with an endeavor to simplify GST and address specific issues, Central Board of Indirect Taxes (CBIC) as well as State Governments have issued numerous notifications, press releases, FAQs, guides and flyers.  

These legal documents are quite detailed and thus, taxpayers need to peruse the same carefully to decode whether the same are relevant for their business operations and if yes, then what are the appropriate steps to be taken. For instance, recently a detailed FAQ was made available, on CBIC official website, which shed light on GST impact on banking, insurance and stock broker services and thus, the taxpayers should ideally review their tax position based on the FAQs.

Similarly, from April 2018, the nationwide e-way bill process is launched. Thus, now the taxpayers should ensure that their supplies and procurement are in accordance with the e-way bill process. Given this, the taxpayers should pro-actively track GST legal updates, decode them and take requisite actions.

Way forward

Change is constant for GST, as in the times to come we may witness developments in GST rates, introduction of invoice matching, reverse charge mechanism, further simplification etc.

Further, India shares very strong trade ties with the Gulf region. From 1 st January 2018, United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA) have introduced Value Added Tax (VAT) and other Gulf countries (i.e. Oman, Bahrain, Qatar and Kuwait) are expected to bring VAT in the coming years. Thus, VAT introduction in these neighboring countries may also impact Indian businesses. Given this, atleast for the next few years, GST would remain a key topic of debate and discussion in the boardrooms. 

(The Author is a Chartered Accountant and has written books on VAT and GST. The views expressed are strictly personal.)