By Archit Gupta
The erstwhile indirect tax structure always left a broad scope for tax evasion. With the implementation of GST, transparency and ease in tax compliance are expected to rise. However, effective change management needs to be in place to get habituated to the new system. It also involves the tedious task of restructuring accounting records for transactions carried out.
The average time taken in preparing GST returns in GSTR-1 and GSTR-3B from internal systems and then submitting them on the government portal, by any taxpayer processing more than 10,000 transactions a month himself, may involve roughly 12 hours while only half the time was spent on filing VAT and excise returns. This is because GST returns require invoice details to ensure an end-to-end compliance by the taxpayer. Not just this, the filing of service tax returns by professionals was a bi-annual task. However, with the introduction of GST, filing 25 returns is a cumbersome financial activity. Every action that business performs consists of a cost factor, and there has been a notable rise in the cost of compliance under GST. Here’s how…
In the pre-GST era, the filing of indirect tax returns was a mutually exclusive activity by the taxpayers, independent of the supplier or buyer’s return. Reconciliation of sales and purchase data with that of other taxpayers for a particular period was much more comfortable as return filing was confined to a business organisation. Business did not stress upon reconciliations as far as returns were concerned and were mostly done once a month or quarter at the time of filing returns. The correctness of tax return data reported through returns as well as the sanctity of input tax credit claim was reviewed by tax authorities. The tax authorities could reconcile the data uploaded by the various taxpayers on the several portals of the VAT, Service Tax, Central Excise and review billing and purchase information. However, now under GST, these responsibilities have been passed on to the taxpayers themselves. Taxpayers, now must upload invoices as well as make sure input credit claim is reconciled or else pay penalty.
Under GST, efficiency in managing working capital lies with how well taxpayers manage to utilise their Input tax credit. Therefore, vendor account reconciliation is of growing importance under GST. Unlike the pre-GST period, agreement with vendor data must be in done real-time to ensure the tax returns are clean, or, the taxpayer ends up with his Input tax credit blocked which may affect the margins of the business. Staying on top of vendor reconciliation requires constant review which involves effort and workforce for this task since it has direct implications on working capital. Every enterprise must follow a collaborative approach to stay ahead and avoid potential mismatches in reported data. Goes without saying that setting this up and making sure your process is going efficiently requires atleast some investment and resources.
Every enterprise must ensure that sophisticated user management is in place to fulfill reconciliation requirements. The quality of the workforce in place to address the complexities and use of smart tools is of rising importance. An enterprise must use intelligent ways and techniques to comply with the taxes that will help reduce cost. Up until now, spreadsheets have been a potent tool for processing data. Unfortunately, that’s not enough. Using productive add-ons in the spreadsheet is required to identify gaps in return data and correct the same before submitting it on to GST portal. These features and tools can range from the use of a simple Vlookup to the complex VBAs.
Further, taxpayers can also easily ingest data through excel-mappers that can help pull out data from ERPs to submit details on to GSTN. However, a better real-time solution would be integrating ERPs for GST return filing to address all the data gaps promptly. For effective communication with vendors, email has always been the best and affordable medium. However, tracking the variations and follow up on payments on a daily basis is a difficult task through emails. Therefore, for effective data management, a centralised system or tool is required.
Today a number of fintech companies provide cloud-based GST compliance software and scalable solutions for the end-to-end management of GST data. These initiatives have helped a lot of enterprises to reduce the burden of compliances at a nominal rate.
When digital filing of VAT returns was introduced, it came along with teething issues though, over time, the benefits outweigh the costs. GST too will hopefully pass this phase in the coming year or so. Meanwhile, with the steady increase in the GST revenue, it is hoped that the government will prune compliances requirements by streamlining the process.
The writer is Founder & CEO ClearTax.