Goods & Services Tax - Preparing for the Shift
The Origin of the Disruptive (in a neutral way) Taxation
After more than a decade long debate and counter debate, and several rounds of political fights, the Goods & Services Tax is all set to become reality in our country. Marketed as "One Nation. One Tax.", this tax legislation is considered to be the single most important legislation in almost three decades, that will make India one unified common market, breaking any advantages which certain specific States presumably had.
Already, there are eulogies being written on the benefits of such a legislation i.e. GST Law, to the Customer, the Traders and the Government. Experts on the Pro-GST side are already predicting a spike of almost 1% in the GDP, completely due to implementation of GST. These are serious numbers. I do sincerely hope that these predictions will come true, even if I am not entirely sold on such crystal ball glazing.
The success of any legislation, and most certainly a tax legislation, depends on how well it is received and embraced by the people directly affected by it. The "Malaysian" example quoted in many articles reiterate this point. Despite a single tax rate and less complex economy and tax structure (compared to India, atleast), Malaysia had serious disruptions in its business, compliance issues and operational difficulties due to implementation of GST.
We don't need to go to Malaysia to know the potential impact of legislative changes for which people are not prepared for. Right from the days of introduction of MODVAT Scheme in Central Excise Law, to the Value Added Tax to replace traditional Sales Tax, we have had seriously disruptive, ultimately beneficial tax legislation. With those experiences from our history, and contemporary history from other economies, it is imperative that our businesses are prepared for this landmark taxation.
Why should businesses be prepared in advance?
Pushing things to the future, knowing very well the potential risks, is never recommended. Procrastination isn't a prudent business strategy. It is often said that successful businesses world over were the ones which had disruptive products and services, in an industry saturated by homogeneity. In similar vein, we can add that business which manage external disruptions better, can sustain well in the long run.
People who prepare for GST implementation proactively can efficiently handle and manage its disruptive nature, and therefore gain competitive advantage over their peer group.This is not only about equipping and enriching the knowledge of the people inside the organisation, but also sensitizing the vendors and customers and all the people connected on the effect and impact of GST.
The most significant challenge will be the compliance challenge, followed by the accounting challenge. And both these are interlinked, and efficient management requires both the knowledge updation and clarity in process. Process clarity should be supported by a robust and efficient system for collecting and collating information on various goods and services the entity deals with. And successfully managing these and gaining that advantage would require early planning and timely execution.
How can one be plan and prepare for the GST?
As stated earlier, we cannot push the planning and execution to the day the GST is implemented, but it has to be now.
Starting from studying the law, doing an impact analysis, looking out for the changes required in the enterprise's reporting framework, training the resources on the law and the compliance required.... are all no longer a choice, but a business compulsion. Without a clarity on these, an enterprise can never estimate the cost involved in the transition and the cost of not managing it wisely.
Enterprises should also recognize that in planning for transition, they cannot stop their operations for doing risk analysis and GST implementation. If managing both cannot be done efficiently, it would be a smarter to engage experts, who you can and should trust to do this for you. Preparation strategies should not exhibit "Penny Wise Pound Foolish" philosophy.
Conclusion
As they say, an ill prepared army is not ready for even a battle. Well prepared battalion, can probably win the war itself!
