GST Implementation-Myth vs Reality

Any major reform is painful, and this is true with GST also. While the Central Government(and to a lesser extent, the State Government) got plaudits for a landmark transition, the business sector was impacted and this continues. From a change management perspective, this Government probably deserves a 3 or lower, on a 1-5 scale. This is because of delayed finalization in rules, last minute rates announcement, and very limited test runs/public APIs. While this allowed consultants to get a windfall business, this decreased corporate ease of doing business.

What needs improvement:

1. Unregistered vendors reverse charge: The government probably imposed this rule intentionally to force small vendors to register anyways to avoid pressure/blacklisting from their registered suppliers. However, awareness campaign has been deficit (for example, 20lakhs limit not applicable to interstate suppliers), thus leaving the education job to a short staffed companies
2. Lack of Official Tariff :The government has given PDFs at 4 level code while leaving a 18% residuary clause, thus throwing open the GST rate classification of several items. 
3. No harmonization in HSN/SAC: Depending on turnover, vendors have option to cite 0/2/4/8 digits of HSN code on the invoice. This poses a challenge for ERP system validation rules, as also reporting of procurement. 
4. Lax merger framework: In an invoice level matching framework, there is no changeover period applicable for merger/amalgamation. This is posing challenges
5. Delay in Registration allotment: The registration window closed on 31 Mar 2017 and reopened on 1 Jun 2017. For those who delayed new registration(NOT migration) pending the release of final rules, they had only a week to take fresh registration. 
6. Automated matching of PAN not allowing for exceptions: Imagine trying to update your GSTIN name(Core field) while PAN is still under old name. This would throw up an exception not allowing you to proceed, and resolve issues offline

The good points:

1. Twitter Page for queries: One can directly tweet the government their queries on GST, and await responses
2. Extension of timelines: The return timelines have been extended due to lack of readiness of Government IT infrastructure. 
3. ICAI education: The Institute of Chartered Accountants of India has released lots of high quality material on its website free of cost. This is really a great public service. 

From a systems perspective, several challenges emerge due to the large number of exceptions. For example, the following rules breakdown 

1. Place of Supply=Place of Customer: It is possible that for certain vendors
2. Vendor Tax Status change affecting the past invoices: If the vendor GST registration is pending allotment
3. One GST Rate for One HSN: There are options in services for different tax rates basis non GST parameters(eg hotel room rental decides whether 12% or 18%, similarly existence of AC in the restaurant determined the 5%/12%18%, also whether vendor wishes to take ITC determines 5% or 12% for rentacab).
4. ITC eligibility linked to HSN Code: It is not possible to define ITC eligibility at item level also by HSN code, so one needs to do tax configurations at a much more detailed level. For example, plastering services may be generally eligible for input credit, but not if used for immovable property construction. Therefore, one may either need to define a custom GST status, or else manually edit this. 

The first returns cycle due on 20th Aug 2017(simplified) and 25 Sep 2017(full) will prove the robustness of the IT infrastructure and whether it will crash like the income tax efiling site. 

How will GST disrupt the CA/accounting, tax and audit profession

In India, the Chartered Accountancy(CA) professional is synonymous with accounting, audit and tax-this does not detract from other professionals of course like CS, CMA, LLBs and tax practitioners. The advent of India's largest indirect tax reform viz GST has the scope to transform the financial professionals industry tremendously. In the short term, there is a LOT of work due to impact analysis, transition, old cases closure etc for which professionals are minting money. But in the medium/long term, the picture is much less clear. Picture the scenario in 2years, where B2B invoices are uploaded online and matched(with government receiving its tax on time) for seamless credit. The income tax audit of these entities can be substantially triangulated with GSTIN data to reconcile revenue and COGS. Would audit become redundant? There are arguments for and against this:
First the positive arguments for simplification( and hence CA revenue declining)

1. Excise, Service Tax, VAT audits all replaced by a single GST audit. 
2. Invoice level matching
3. Government audit interest declining once it receives its tax payment on time
4. Statutory audit simplified from indirect tax/compliance
5. Lesser possibility of people evading direct tax while reporting higher GST revenues

Arguments for complexity (and hence bright future for CAs)

1. Multiple GST rates-hence classification confusions
2. Residual 18% rate vs lowest 5% slab, chances for government to raise aggressive tax positions
3. ~40% GDP still out of GST tax net-hence need to check omissions
4. Reverse Charge for purchases from unregistered vendors-substantial complexity
5. Non GST expenses like salaries, utilities, taxes-hence cannot prepare full P&L
6. Multiple GST registrations for Pan India entity, need for record keeping/reconciliations
7. B2C Invoices uploaded in summary NOT at invoice level-so need for audit here

There will of course be 'Non professional' work such as mismatch reconciliations, vendor review etc but this will be outsourced I suppose. 

Draft GST Formats-Some Observations

As professionals, part of the public service obligation in my view, is to go through draft proposals and try to refine/improve it. In that light, I decided to read the 70pg GST forms/rules, and find out any issues. Below are my observations.

Form/Rule	Observation	Suggestion
FORM REG GST-1- Application for Registration under Section 19(1) of Goods and Services Tax Act, 20	Trade name is asked also as an optional field. Address contains latitude/longitude which might be used for apps/mapping. Reason for registration is sought including merger etc Nature of premises ownership is asked including shared/Consent-this might be a risk mapping factor DIN/Aadhar/PAN/Passport Number is asked for details of KMP, besides citizenship-helps cross matching	Name of Father/Mother instead of Name of Father
FORM GST REG 26-Form for Field Visit Report	Physical verification report has photograph of place with person present at verification time as also details of open, covered and, floor on which business done.	It ensures the person has visited the place, and gives details of the person interacted with. If only there is a similar facility for Swatch Bharat Abhiyan, things would be much better
Rule 1[e]Tax Invoice	name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is unregistered and where the taxable value of supply is fifty thousand rupees or more-This provision will help curb URD menace and the bill to/ship to scam	The invoice should also include the PAN number of the unregistered recipient, so that it is easier for the government to track. Name/Address alone with end up in a physical/manual reconciliation