Barely 10 per cent of small businesses are inaGSTready position, and just about half have robust IT systems to comply with requirements of the new indirect tax regime, say experts
As lawmakers are in the process of clearing the decks for the rollout of the goods and services tax by July 1, small and medium enterprises (SMEs) appear to be the weakest link in corporate India´s efforts to be GSTcompliant by the cutoff date.
Of the estimated 8 million registered businesses under the VAT regime, around 90 per cent are SMEs.
The GST applies to businesses withaturnover of Rs.20 lakh or more.
The threshold is Rs.10 lakh for businesses in the northeastern states.
While large companies have engagedabattery of experts to help them transition to the GST regime, SMEs are still struggling to assess the impact on their businesses.
“Most remain unaware that the GST will driveabehaviour change and is not justatax change or rate change,” says Bharat Goenka, managing director, Tally Solutions.
Tally, along with 33 other companies, has recently been appointed as GST Suvidha Providers to help businesses transition to the new regime.
“We estimate less than 10 per cent of SMEs are inaGSTready position,” says Pritam Mahure,aPunebased chartered accountant and GST trainer.
VS Datey, editor, Taxmann.
com, says at best 50 per cent of SMEs have IT systems robust enough to comply with the requirements of the GST.
Apart from the need to invest in IT systems, the challenge for SMEs, say experts, is that they do not have the manpower to follow up with their vendors or suppliers and the wherewithal to ensure payment of the tax by them.
Under the GST the buyer ofagood or service is totally dependent on the seller for any input tax credit.
The tax credit available toabuyer is dependent on the return furnished, tax collected and deposited by the seller in the course ofasale transaction.
There are provisions in the GST law that mandate input tax credit will be available toabuyer only if the supplier has paid tax withinagiven timeframe.
Each invoice forabusiness transaction is registered with the GST Network and matched for compliance against tax and input credit claims.
The new indirect tax system has also brought in the concept of compliance rating made available in the public domain that tracks the record ofabusiness in filing returns and paying tax. So clients, existing and new, can refer to this rating before entering into any business transaction.
To prepare for these technologydriven changes in the business environment, SMEs have to first automate their business processes and accounting systems.
“Any upgradation of the existing accounting system has to reflect information Nangia, director, SISL Infotech,aGST Suvidha Provider.
According to Goenka of Tally Solutions, businesses need to review their purchase and expense portfolios and ensure that their suppliers are compliant and capable of uploading their invoices so that they can avail the input credit.
Any break in the tax chain will mean nonavailability of input tax credit for all the players involved.
“Breakdown in the input tax credit will affect everyone in the supply chain,” says Mahure.
Given that input tax credit can only be availed of if the tax is paid withinastipulated timeframe, experts expect there could be some additional requirement for working capital for businesses in the short to medium term.
“Working capital requirements are likely to undergoachange,” says Nangia.
For some cashstrapped small businesses that could result in higher borrowing to ensure that the input credit chain is not disturbed.
“Any break in the chain is notaviable option for small businesses as this will impact their cost transition to the new tax regime may gainacost advantage of anywhere between 2 per cent and 4 per cent, says Goenka, derived through tax efficiencies generated across the system.
GST Suvidha Providers targeting the SME segment are working on various inthebox solutions.
“We are tailoring solutions for different industry segments, customising them at the client´s end,” says Agarwal.
Given the diversity in the profile and size of SMEs -ranging from production units to service centres –solutions have to be customised to the needs of the industry segment, say tax experts.
As part of the outreach programme Alankit claims to have roped in several partners with industryspecific expertise to target various SME segments.
Plans are on to organise workshops for SMEs in 55odd cities, says Agarwal.
Nangia says the key is issues around ease of invoicing, filing of returns and payment of tax.
According to Datey of Taxmann.
com, it is working on tools that will enable SMEs to transfer data from their existing accounting software to spreadsheets that will enable firms like theirs to upload the data. Pricing models to tap the business need of SMEs to be GSTready are still in the works, say most the players.
Agarwal estimates the business opportunity to make SMEs GSTcompliant is worth at least ~3,000 crore.
“Pricing is likely to depend on the number of transactions they make inayear,” he says.
It is still early days for both SMEs and the service providers in the path to be GSTready.
A PRIMER FOR MAKING SMALL BUSINESS GST-COMPLIANT
Of the estimated 8 million registered businesses under the VAT regime, around 90 per cent are SMEs.
The GST applies to businesses withaturnover of Rs.20 lakh or more.
The threshold is Rs.10 lakh for businesses in the northeastern states.
While large companies have engagedabattery of experts to help them transition to the GST regime, SMEs are still struggling to assess the impact on their businesses.
“Most remain unaware that the GST will driveabehaviour change and is not justatax change or rate change,” says Bharat Goenka, managing director, Tally Solutions.
Tally, along with 33 other companies, has recently been appointed as GST Suvidha Providers to help businesses transition to the new regime.
“We estimate less than 10 per cent of SMEs are inaGSTready position,” says Pritam Mahure,aPunebased chartered accountant and GST trainer.
VS Datey, editor, Taxmann.
com, says at best 50 per cent of SMEs have IT systems robust enough to comply with the requirements of the GST.
Apart from the need to invest in IT systems, the challenge for SMEs, say experts, is that they do not have the manpower to follow up with their vendors or suppliers and the wherewithal to ensure payment of the tax by them.
Under the GST the buyer ofagood or service is totally dependent on the seller for any input tax credit.
The tax credit available toabuyer is dependent on the return furnished, tax collected and deposited by the seller in the course ofasale transaction.
There are provisions in the GST law that mandate input tax credit will be available toabuyer only if the supplier has paid tax withinagiven timeframe.
Each invoice forabusiness transaction is registered with the GST Network and matched for compliance against tax and input credit claims.
The new indirect tax system has also brought in the concept of compliance rating made available in the public domain that tracks the record ofabusiness in filing returns and paying tax. So clients, existing and new, can refer to this rating before entering into any business transaction.
To prepare for these technologydriven changes in the business environment, SMEs have to first automate their business processes and accounting systems.
“Any upgradation of the existing accounting system has to reflect information Nangia, director, SISL Infotech,aGST Suvidha Provider.
According to Goenka of Tally Solutions, businesses need to review their purchase and expense portfolios and ensure that their suppliers are compliant and capable of uploading their invoices so that they can avail the input credit.
Any break in the tax chain will mean nonavailability of input tax credit for all the players involved.
“Breakdown in the input tax credit will affect everyone in the supply chain,” says Mahure.
Given that input tax credit can only be availed of if the tax is paid withinastipulated timeframe, experts expect there could be some additional requirement for working capital for businesses in the short to medium term.
“Working capital requirements are likely to undergoachange,” says Nangia.
For some cashstrapped small businesses that could result in higher borrowing to ensure that the input credit chain is not disturbed.
“Any break in the chain is notaviable option for small businesses as this will impact their cost transition to the new tax regime may gainacost advantage of anywhere between 2 per cent and 4 per cent, says Goenka, derived through tax efficiencies generated across the system.
GST Suvidha Providers targeting the SME segment are working on various inthebox solutions.
“We are tailoring solutions for different industry segments, customising them at the client´s end,” says Agarwal.
Given the diversity in the profile and size of SMEs -ranging from production units to service centres –solutions have to be customised to the needs of the industry segment, say tax experts.
As part of the outreach programme Alankit claims to have roped in several partners with industryspecific expertise to target various SME segments.
Plans are on to organise workshops for SMEs in 55odd cities, says Agarwal.
Nangia says the key is issues around ease of invoicing, filing of returns and payment of tax.
According to Datey of Taxmann.
com, it is working on tools that will enable SMEs to transfer data from their existing accounting software to spreadsheets that will enable firms like theirs to upload the data. Pricing models to tap the business need of SMEs to be GSTready are still in the works, say most the players.
Agarwal estimates the business opportunity to make SMEs GSTcompliant is worth at least ~3,000 crore.
“Pricing is likely to depend on the number of transactions they make inayear,” he says.
It is still early days for both SMEs and the service providers in the path to be GSTready.
A PRIMER FOR MAKING SMALL BUSINESS GST-COMPLIANT
- In the runup to the GST regime, first ensure completion of accounts and keeping it uptodate
- Have correct stock position as on June 30, especially on taxes paid, goods returned etc.(assuming GST rolls out from July 1)
- Take stock of input tax credit as on June 30, 2017, as this will get passed on to the new regime.
- It should be inaformatwhich can be easily verified
- To be ready for the GST regime, businesses have to automate accounting, inventory management, issue of bills, etc
- Align the invoice, specially the numbering system and other contents according to the invoice rules as prescribed under GST law
- Get registered under GST at the portal
- Ensure your suppliers and buyers are also enrolled
- Regularly upload invoice data on the GST portal
WHAT TO WATCH OUT FOR IN THE GST REGIME
- Cash flows as workingcapital requirements may undergoachange
- Prepare forabusiness behaviour change by aligning suppliers to be compliant and setting payment terms such that their invoices are uploaded
- Strict discipline in maintaining records and filing of returns, along with rigid financial controls
- Takeahard look at expenses to increase gains from the GST.
- Experts expect businesses that implement GST correctly to gain cost advantage ranging from anywhere between 2% and 4%
- Sensitise employees, vendors through regular training on an ongoing basis
Business Standard New Delhi,20th March 2017
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