The Goods and Service Tax is a game changer because it is not just an overhaul of indirect taxes, but the way business is done. Unless you are not on top of your taxes on a daily basis, there is no way you will be on top of your business. Let us examine what this means for an SME and also for unorganised businesses.
How do SMEs comply with their taxes today?
At the end of a specified period, be it a month, quarter or a year, a Chartered Accountant (CA)/Sales Tax Practitioner (STP)/Tax Return Preparer (TRP) would either call or send his person over to the business person’s establishment, collect the documents of sales and purchases and on the day the payment is to be made, advise an amount to be paid and manage the compliance process. There is also the management of the assessments, dealing with the assessment officer, providing explanations, etc.
How will things change with GST?
GST is a technology led law. Nothing under this law in terms of compliance can be accomplished without a stamp of technology. Right from raising invoices to the matching that happens on the GSTN portal for availing input credit to filing returns, making payments, everything is technology led. So, if you or your advisor (CA/STP/TRP) is going to believe that you are going to wade through this without adopting technology, you are doomed. Unless the business person can actually monitor input credits and ensure they get available, the business will not be competent. This is not only restricted to the business but the entire ecosystem the business is part of. Everyone will need to comply.
What about the unorganised sector?
If you look at the Rs 20 lakh limit for registration and compliance, what does it exactly mean? A business of Rs 6,000/day – which many people in the economy are into but not necessarily aware that they need to comply. The number of these businesses is roughly six million. Unless they efficiently comply, the seamless chain that is the foundation of any value added tax regime would fail, ultimately leading to them closing down. However, if adopted, this would be a huge boost to businesses of every size.
What should be done to prepare and be ready?
There are a few important things which need to be followed to the ‘T’ to ensure a successful regime for small businesses.
Technology – Since technology is the foundation of GST, you either adopt it or lose your position in the market. Be it for availing input credit, filing returns or for that matter any part of compliance, technology in terms of choosing the right software to manage your business is the key.
Transparency – With demonetisation extending its tentacles, there is very little that a direct tax officer does not know about your business that an indirect tax officer knows or vice versa. So the more transparent you are, you get the stamp of confidence from your ecosystem and this can enhance your business.
Timelines – Gone are the days when defaulting in filing your returns affected only you. It will now affect everyone in the ecosystem; this will lead to you losing your trust in the chain and the risk of going out of business. So timelines become extremely important and cannot be taken for granted.
Training – Train your employees and get them to understand the importance of compliance and how it directly affects your business. This needs to be looked at from long term perspective and will play a very important role in the smooth operation of your business.
Tax Return Preparer – If you chose to outsource your returns, ensure that the TRP understands your business and also assists you with the right amount of knowledge and expertise that is needed from him.
Overall, it is a make or break time for businesses and we are at the cusp of one of the biggest economic changes in the country’s history. The mantra to best manage this change is technology and its successful adoption will be key to compliance and economic growth.