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Padding up for GST

By Sudipto Dey
July 25, 2017 15:45 IST
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Businesses that are engaged in both taxable and non-GST supply have re-structured themselves into separate entities to avoid elaborate compliance, says Sudipto Dey.

Siddharth Neogi, a senior finance professional, in a Noida-based mid-sized manufacturing company, and his team, have been working on the trot for the past two weeks.

So has a team of IT professionals of the company’s systems department, along with some external tax consultants.

The task at hand seems a gargantuan one: Making all IT systems and processes GST-compliant.

A company executive said that it was a touch-and-go situation: “Many businesses like us could not complete the trial testing of software because we were expecting the government to defer the implementation.”

The company has now resorted to manual invoicing, which will be uploaded later.

Classification has been another major issue with many companies.

A tax consultant points out that in the earlier regime the rate of duty in most cases was in the range of 12.5 percent, so a wrong tariff classification did not have any revenue implication.

However, that is not the case now. Incorrect classification could also attract penalty from tax authorities.

Lack of clarity around the reverse charge mechanism (RCM) for purchases from unregistered suppliers has led to some disruption in sourcing.

Though most companies do not want to go on record on this, tax consultants confirm the same.

The composition levy scheme, which was supposed to offer succour for small businesses, comes with too many riders, say many in the industry.

“Businesses do not have huge margins, especially in the distribution part of the trade,” points out Madhukar N Hiregange, partner, Hiregange & Associates.

There has also been some re-jigging of business.

Businesses that are engaged in both taxable and non-GST supply - such as hospitals, educational institutions, petrol pumps - have re-structured themselves into separate entities to avoid elaborate compliance.

“We are noticing that for the sake of simplicity suppliers are segregating exempt goods and services into entities separate from entities from which taxable commodities are supplied, even though this does not lead to a reduction in their overall tax burden,” says Pallav Pradyumn Narang, a Delhi-based chartered accountant.

Further, since stock transfers to units of the same entity attract the GST, business are trying to structure transactions in a way so as to minimise such stock transfers.

“Since the business location in each state is to be treated as a distinct person, having a separate registration under the GST, businesses are trying to decentralise procurements to the extent possible,” says Rajeev Dimri, leader, indirect tax, BMR & Associates.

Experts say there have been many instances of imperfect inventory planning.

Industry players point out that the supply chain got disrupted in the first few days mainly due to the transportation sector, which was largely unaware of the tax implications, and were overcautious on their part for accepting consignments.

What makes the Rs 20-lakh threshold irrelevant:

One would be required to register for GST irrespective of whether one meets the threshold or not:

  • Persons making any inter-state taxable supply
  • Casual taxable persons making taxable supply
  • Persons required to pay tax under reverse charge
  • Non-resident taxable persons making taxable supply
  • A person who makes taxable supply of goods or services on behalf of other taxable persons
  • Input service distributor, whether or not separately registered under this Act
  • Persons who supply goods or services through an e-commerce operator
  • Every e-commerce operator
  • Every person supplying online information and database access or retrieval services from a place outside India to a person in India, other than a registered person

(This is not an exhaustive list)

Photograph: Rupak De Chowdhuri/Reuters

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