Lack of GST fine print keeps anxious software cos waiting
April, 18th 2011
The lack of clarity over how the Goods and Services Tax (GST) would be introduced is hindering the development of software required to run processes under the new tax regime and are making large enterprises with inter-state operations nervous. It could take about three to four months for system and software support companies to build the new software and an additional three months for their enterprise customers to train employees.
GST, tabled in Parliament last month, will impact all business processes in the supply chain. Since it replaces existing indirect taxes such as excise, VAT, CST and service tax, it will affect all business transactions carried out by manufacturers, dealers, importers, service providers, service receivers and exporters. Companies would therefore have to update various software solutions across all their locations.
Business software vendors who run most of the countrys Navaratnas and other large manufacturing as well as services companies said they have been trying to get answers to multiple questions right from the finance ministry to the Central Board of Excise and Customs. GST consultants noted that even though the government has announced a formal structure for the new tax regime, it has not frozen on how GST will operate. Unless this is done, vendors cannot decide on the additional support that would be required from a system and software side.
An interpretation of the white papers released by the government could result in few ambiguities related to business processes such as the handling of inter-state procurement and sales process, handling of state specific exemptions, tax regulations related to operations in depot, SEZs and the tax refund process among others, said an executive of a firm.
We have said the government should confirm whatever structure has been suggested. We told the government that the software support groups would ideally require about six months.
They would like to assess the situation, decide on the additional support, programme the software, test drive it and get desired results before the software can be released. The gravity of the issue needs to be realised and acted upon, J Krishnaswamy, former GM, Finance at Tata Motors and currently a consultant to the firm said.
Navaneet Mishra, vice president, globalisation services at business software multinational SAP said the company is anxious to know the fine prints. It is the biggest legal change that is happening since companies have moved to using software and ERP (enterprise resource planning) in India. And the government should give us enough time so that not only the fine print is available for software implementation but enterprise customers are able to educate their employees about the changes, he said.
One of the major challenges, going ahead, would be handling the transition from the old tax regime to GST. Software firms said the government has not yet provided a clear directive on managing the transition data that is critical for customers. With the changeover to the new tax regime being proposed as on April 1, 2012, companies would need directions on the treatment of open documents such as sales orders, purchase orders and closing Balances of tax credits. Organizations will need support from the software application providers to identify all the open documents which exist with the old tax computation and move these documents into the new tax structure from the effective date of GST implementation, an executive from a software product firm said.
We have given the government a set of questions that should be answered soon. What if something starts shipment in the previous regime and is returned back in the GST regime? The behaviour of the software would have changed by then and lack of clarity beforehand can lead to lot of litigations later, he added.
Another complication would be if GST is not followed by all the state governments. It is impossible for a company to think of a situation where some states dont follow GST. It will make tax administration as well as sticking to business strategy extremely difficult. It will make compliance extremely costly, in terms of effort and outflow, J. Krishnaswamy said.