GST should not stand for Gory, Sloppy and Tricky. But how?

Pratima H

BANGALORE, INDIA: GST is just around the corner and with every passing day the yarn of confusion turns into a really tangled ball. Technology can be yet another knot here garbling the already foggy mass of questions and cluelessness. Or? Or it can be the precise thread that unravels the mess pulling at the exact right place.

As GST strides ahead to simplify indirect taxation for goods and services traded across the country, and to shrink gaps and leakages in the current system; Technology can not only streamline tax processes, minimise dependencies on manual processes but also spur transparency in determination of taxes, as Vinay Sethi, Head, Market Development, Global Tax, Thomson Reuters India sees it.

If you have been wondering about how Canada, Singapore, New Zealand etc. managed to steer through these mists; if the questions around GSTN, customisations, Destination Principle, ERP upgrades, state-wise variations, twin rates, exclusions, specific interpretations, and GSPs have added to your bewilderment; you can wonder and worry a little less now.

Armed with note-worthy candor and insights, Sethi combs through a lot of GSTial confusion and disorientation in this detailed interview.

Should enterprises and IT-vendors be too concerned about the GST change: Will it be an easy switch-over or a major overhaul entailing process-level tremors?

The implementation of GST will be one of the biggest tax reforms in India because it will change the way in which businesses are being carried out in the country. The implementation of GST is unlike the implementation of any other tax such as Education Cess or Krishi Kalyan Cess or Swacch Bharat Cess; it requires considerable amount of time and effort to understand the implications on different business processes and ensure that the same is suitably addressed in the ERP.

Can you elaborate?

Some of the different business processes that will be impacted by GST implementation include:
• Stock transfers
• Sub-contracting
• Multiplicity of GST registrations
• Tax calculation logic / framework
• Invoicing and reporting requirements
• Master data changes
• Transitional requirements for migration to the new tax regime

Large ERP players such as SAP, Oracle etc. intend to offer a support patch for their ERPs so as to meet India GST requirements. Organisations would then be required to upgrade their respective ERPs with the India GST patch, which is not an easy switch over as it requires a lot of time and effort.

GST execution will be one of the biggest tax reforms in India: Vinay Sethi

But are technology solutions ready (about to get ready) for the kind of complexity (ex-ERPs dealing with multiplicity of rates) and functional-silo-wipe-out that the new regime might need?

Major ERP providers are working on the release of the support patch in order to meet India GST requirements, largely from business processes and tax determination perspective. Similarly, there are a few technology players in the market which are in the process of building solutions, mainly for tax compliance purposes. GST also envisages the role of GST Suvidha Providers (GSPs), wherein solutions will ensure seamless flow of tax payers’ data to and from GSTN system.

Adequate enough?

Only a few global corporates are in the space of providing complete end-to end solution right from the stage of tax calculation up to the stage of filing the returns and providing robust reporting capabilities ensuring proper reconciliation of in-house ERP data with the suppliers’ data. The tax solution provided by global companies provides a comprehensive platform which supports tax requirements for multiple countries which could be tweaked a little bit and even leveraged for fulfilling India GST requirements.

Will technology be a boon or a burden then? What's Thomson Reuters game-plan here?

GST envisages organizations to follow consistent tax rules and policies which need to be applied in multiple tax jurisdictions across the country and in a time bound manner. Implementation of such rules and policies uniformly across different locations without the help of technology may not be possible. Tax Technology particularly helps businesses to streamline their tax processes, minimise dependencies on manual processes and increase transparency in determination of taxes.

Thomson Reuters offers a comprehensive and integrated suite of global tax technology solutions under the aegis of ONESOURCE Determination which automates tax determination both on sales and procurement side, by way of integration with various ERPs and diverse in-house systems and also provides repository of transactions data for compliance and audit defense purposes. Additionally, Thomson Reuters also offers ONESOURCE indirect tax compliance solution which helps organizations in automating their GST returns and fulfilling other compliance requirements including seamless integration with GSTN system.

Will the scenario be an architectural nightmare or an implementation one?

ERP providers are planning to come out with suitable India GST patches in order to enable their ERPs to capture basic India GST requirements. Further, the India GST patch cannot be applied across different versions of the same ERP as this upgrade patch comes along with certain prerequisites and limitations.

Also, considering the July 1 timeline, aligning ERPs in line with GST requirements certainly appears to be an architectural nightmare, especially for those with multiple systems (whether ERPs or in-house systems) and those that are not well versed with complying tax requirements on state-level basis (like banking and financial sector).

Aligning ERPs in line with GST requirements seems to be an architectural nightmare

What major impact will it have in terms of changes that would be required (specially upgraded vs. non-upgraded versions) and how disruptive would that be for existing systems?

Well the upgraded version of the ERP has an advantage in terms of support, being provided by ERP in terms of availability of India GST patch which could be applied squarely on the ERP so as to receive the basic framework for application and determination of GST. In contrast, the non-upgraded version of the ERP pre-necessitates major ERP customisations, requiring higher time and effort, in order to enable the ERP to support India GST requirements.

Significant ERP customisations become cumbersome for the organisations to maintain in future and such organisations fail to get standard support from the ERP providers.

Would this open up/expand/penetrate the market for technology in a new way?

The current indirect tax system in India is complex with multiple levels of taxation and variations in rules and rates across the states. In comparison to existing indirect tax structure in India, GST aims to simplify indirect taxation for goods and services traded across the country and it also strives to reduce gaps & leakages in the current system.

The Government has already made huge investments in technology by creating a special arm in form of GSTN to lay down the much needed technological infrastructure enabling the GSTN system to process billions of invoices in a day.

Stringent timeline to file GST returns and speedy reconciliation of supplier’s data with ERP or in-house data require significant information technology backbone for the organisations to be GST compliant. Needless to say, technology will play a crucial role under GST regime and a company with appropriate GST technology solution can capture significant market share.

How much would this affect the space for big data (3 billion invoices anticipated already), analytics, MDM etc.etc?

In GST regime, organisations are required to upload invoice wise data on GSTN. With more than 8 million taxpayers in the country, GSTN is likely to process as much as 3 billion invoices in a month and it is expected that more than 50 per cent of such invoices would be loaded on the last day of filing the return.

While the CEO of GSTN is confident that the GSTN system is capable of handling such large volume of data, they are also encouraging companies to uploaded invoice details on the GSTN system on more frequent basis (weekly, daily, hourly etc.) so as to reduce the load on the system on the last day.

Organisations generating a large amount of invoices are suggested to gear up their ERPs or other in-house systems so as to provide invoice feed to GSTN system on a shorter time-frame as against monthly basis. Technology solutions should also be capable enough to provide compliance / MIS data or data analytics in a robust manner.

Will the new model take care of incidental issues like state-wise variations, twin rates, exclusions, specific interpretations, input tax, inter-state/intra-state tax, neutrality of tax, specific processes, tax evasion, double taxation, and snag-free transitions?

While ERPs are generally meant for supporting different business processes, dedicated tax technology which comes along with the out-of box tax logic framework and standard content which can be easily adopted by the organizations to take care of state wise variations, twin rates, input tax credit, inter-state and intra-state tax etc. Additionally, the company specific rules and policies could also be configured in tax technology solution with ease.

Is the Destination Principle going to make things easier or otherwise?

The current indirect tax structure is a mix of origin based taxation and destination-based taxation while GST is going to be only a destination-based taxation system. Under the destination based taxation system, the tax revenue is accrued to the destination state. In India, GST needs to be discharged at the origin state but the corresponding tax amount will get remitted to the destination state by a clearing agency (RBI) based on the data generated from GSTN system.

Under GST, in case of inter-state transaction while the GST will be paid by the supplier in the origin state the purchaser will get the Input Tax credit in the destination State. While it looks easy the ERP implementation or in-house systems may not be that simpler.

Any specific verticals that might face more-than-average challenges or outcomes as per your reckoning? Like segments with high volume of reverse transactions?

GST might connote simplification of tax regime particularly for the manufacturing sector as multiple taxes as applicable for manufacturing sector such as Excise duty, AED, Cess, Surcharge etc are going to be subsumed in GST. However, the service industry is likely to see major challenges as currently the levy of service tax is by the Centre and service industries are typically not required to determine taxes at the state level and therefore their IT systems may not be equipped to calculate taxes at the State level.

For the financial sector particularly, deploying multiple systems and ensuring all their IT systems are aligned to GST rules in a shorter time frame may be an uphill task. Import of services from outside the country attracts GST liability under reverse charge basis and accordingly companies being major importer of services will have high volume of reverse charge transactions.

Additionally, purchase of goods or services from unregistered dealers also attracts GST liability on reverse charge basis and accordingly companies having large volume of transactions from unregistered suppliers will have high volume of reverse charge transactions. A lot of food processing companies procure supplies from unregistered suppliers and such companies could also have large volume of reverse charge transactions.

Government is also conscious that GST rollout may spike inflation

What lessons, if any, can be gleaned from other countries like Singapore. Australia, NZ here?

Currently around 160 countries have adopted GST / VAT in some form or other. GST is based on the principle of destination-based taxation system. Only Canada follows the concept of dual GST; while Canada faced initial hiccups at the time of implementation, a pragmatic approach by the Government where it reduced dual GST rates helped ease the process.

Singapore and Australia experienced a spike in inflation when they introduced the GST. New Zealand lacked exemption provisions for essential goods and services. Malaysia provided 1.5 years to industries to prepare them for GST. Malaysia also provided for sector specific guidelines and incorporated anti-profiteering regulations in the law.

The Indian government definitely seems to have taken cues from such countries and accordingly anti-profiteering measures have been incorporated in the law. Similarly, the Government has also created various groups to address the concerns of various sectors. The Government is also conscious of the fact that GST rollout may spike inflation and GST Council is accordingly trying to fix the GST rates closer to the present tax rates.

Anything else worth noting? Like a broader readiness for digital transformation, the equation between speed and compliance in accounting systems, the good and bad side of customisation, and GST as another red-tape paradox for corporate India?

It is worth noting that the Government is leaving no stone unturned to bring GST to reality. The Government has progressed significantly during last one year and the speed and pace at which the government is progressing on this is really commendable. Industries also need to ensure that their IT systems are aligned as per GST requirements.