The decks have been cleared for the introduction of the path-breaking Goods and Services Tax (GST) bill in the country as four supplementary GST legislations. These are the Central GST (CGST), Integrated GST (IGST), Union Territory GST (UTGST) and the Compensation Law bills are now passed by both houses of parliament and also assented by the President of India.
GST councils have approved the rules (as below) related to GST, and these are :
What is this pathbreaking reform that is described as a game changer for the Indian economy? It means that most existing taxes will be done away with and replaced by a single point levy. It removes a huge plethora of bureaucratic paperwork. It is a single tax at the final point of consumption and does away with the multiplicity of taxes at every level of the supply chain from manufacturing to sale.
GST will roll out on 1st July 2017. From an organization’s perspective, business and operating model, changes are imperative. The overall working capital and finances of the organization will also need to be restructured from the provisions of GST. As GST is a network-based tax, the operational platform (ERP) that the organization is running on, needs to go on a revamp. Companies should enable the following to be GST ready:
- All the data which has migrated is for all new taxpayers who will come under GST provisional registration as of 1st July. Tax payers will receive a window of 6 months for final registration.
- The decision regarding separate registration for multiple business places and products should be taken considering the impact of registration taken before migration.
- Organizations need to study the final GST framework and plan inventory transition for their internal operations, suppliers, and customers.
- Organizations would need to deposit taxes on stock transfers or clearance of goods.
- With the concept of reverse charge mechanism in goods, the supplier and the receiver of the goods will be liable to pay taxes. It is advisable that the company’s provision for more working capital in advance.
- Procurement of goods and services may undergo a fundamental shift. Material invoices need to be uploaded to the GST network as soon as they are received. Data uploaded by the purchasing organization should match with the data uploaded by supplier within the last ten days of each month.
- Mismatch needs to be detected within two months from the date of detection, or else credit will lapse. Accounts payable will also need to be included in this process, so that in the case of any mismatch due to supplier’s error, the organization may withhold its payment, or blacklist it as a vendor.
- Pharmaceutical organizations with unutilized (accumulation) of Sale VAT credit, will be able to get the extra accumulated VAT credit refunded in the hands of the buyer. In case they are not able to do so, the direct tax refund will be allowed.
- ISD (Input Service Distributor) has been defined under Section 2 (56) of MGL, as an office meant to receive tax invoices and further distribute the credit to supplier units proportionately.
- Every entity will be required to file a minimum of three returns every month for each registration. The bigger issue is the number of data elements required to be reported on each return. GSTR 1 will require reporting of 73 unique data points, at line item level.
There will be changes to the invoicing rules also which will affect the procurement and selling process. Some of the changes would include:
- The content, time limit, and manner for the issuance of tax invoices and providing for a bill of supply and receipt voucher.
- Specify the requirements for issuance of credit/debit notes and tax invoices to be issued in the case of Input Service Distributor.
- Bill of supply issued in place of tax invoice in the event of a registered person supplying exempted goods or services, or paying tax under the composition scheme.
- A registered person would need to issue a receipt voucher on receiving any advance payment on the supply of goods or services or both.
While implementing GST in SAP, it is customized to the client’s business practices and reporting requirements or business specific customizations. Overall GST implementation will take a minimum of ten weeks and maximum of sixteen weeks. A checklist that needs to be considered while making SAP ERP changes.
- Organizations need to go for master data changes and check for all open transactions before go-live.
- Start identifying the HSN codes for materials.
- Start codifying the service master and determine the SA code.
- Re-look into the vendor and customer masters based on the region of supplies as this is going to be the key for determining the GST tax components.
- Place of supply in tax regime will determine the destination tax. This needs to be factored into the design.
- Existing open orders which are not executed or partly executed need to be renegotiated with vendors and closed.
- Auto-populate the input tax credit reversals when there is a mismatch of invoices in the taxpayer’s account.
Checklist specific to SAP system itself would include:
- SAP need to be at minimum release level version ECC 6.0 with appropriate service packs.
- Organizations need to migrate from TAXINJ (tax code based procedure) to Tax INN procedure.
- SAP has been continuously updating the already released OSS notes. These changes are in the programs (auto correction instructions), and also manual changes need to be made to the ABAP code.
- SAP has released 18 solution notes so far, and 20+ revision notes.
GST implementation is going to be a challenge for every stakeholder in terms of software systems changes and taxation process changes. Nonetheless, SAP ERP consultants and tax practitioners at YASH with expertise in GST can help your organization with complete regulatory compliance, as well as assist you in setting up the IT infrastructure needed to guide your operations.
Praveen Bhoomraogari is a senior technology professional – Program Manager and Mihir Turakhia is a senior Indirect Tax Consultant
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