GST COMPLIANCES AND THE CHALLENGES AHEAD

GST regime has completed more than a year, and the journey has been eventful, with multiple changes made time and again. The biggest issue has been the GSTN, which is now settled, except to the extent of new changes that are introduced or to the extent of filings which are yet to commence e.g. GSTR-9, GSTR 9C etc.

One of the key areas of concern for the Government has been revenue collections month on month. The year of 2018-19 saw Government not meeting its targets and therefore, the GST revenue budget was revised downwards. The Government has pegged the current fiscal year budget at 13.71 crores (for FY 19-20) which asks for a 16.6% growth over the FY 2018-19 revenues. Needless to mention, a lot of focus is going to be placed on revenue enhancement, which inter alia would include plugging revenue leakages. We have already seen notices being issued by authorities on various aspects such as the GSTR-1 & 3B reconciliation, GSTR 2 & 2A reconciliation, notices which questions non-payment of GST in cash etc. All these notices are an outcome of the robust data analytics process that the Government has been implementing. The question is, are corporates prepared to generate the data that is needed to respond to such notices in a timely manner.

Let us assess this by looking at the year gone by.  The first and foremost data requirement was for filing of the GST returns i.e. GSTR-1 & GSTR 3B, which logically always had to match. However, numerous mismatches were identified resulting in the issuance of notices, either alleging short payment or excess credits. There were company grievances as well around excess payments or short credits, and the question that often got debated is whether the interest can be on the net value (e.g. short payment less credits available) and not the gross liability. It is worth mentioning about the recent High Court decision (Tel and AP), which if considered as the correct position in law could lead to enhanced interest consequences for delayed filing, despite the fact that there is an available credit.

Considering the above, it is imperative that the data preparation is entirely automated – in the right format and validated, e.g. correct GSTN number, correct rate, correct GST – CGST and SGST or IGST etc. This is assuming that the data entered is correct and no rectification is required and if not, then, there is also a need to set up automated processes for vouching for the data as well e.g. OCR[1] scanning of invoices, comparison with PO etc. Another critical step (ideally to be conducted before filing of the returns) is reconciling it with the financial books. The question is considering the timelines, can this be done month on month. The answer could be yes, if the right technology is deployed, but certainly not manually.

The next challenge is availing timely credit. The GSTR 2-2A reconciliation process has been complicated for most corporates and in many situations has resulted in a credit loss. It is important that the approach on reconciliation of credits is proactive and not reactive. There is a need for introducing automated processes which could ensure that the invoice gets reconciled the moment it is issued and errors if any are resolved immediately. This would become more important going forwards considering the new return filing process whereby, credit is available only once return is filed by the supplier. Hence, if a real-time reconciliation is not carried out, it would lead to cash flow impact as credits cannot be availed immediately. Further, steps taken to avoid credit loss, such as to withhold GST payment, would lead to additional work/business disruption. We will also now see authorities getting into substantive issues relating to the eligibility of credit, credit reversals, distribution of credits, cross charge and deemed value where full credit is available and interpretation around what is full credit, and it is only prudent that the verification and reversal (for non-eligible credit) is completed beforehand.

The next set of statutory compliances is the filing of GSTR 9 & 9C. This is the first year of filing these forms and most corporates are going through the struggle of gathering the data that is required to be reported. The complications increase when such data is required to be filed State-wise. Also, certain additional information required such as HSN wise summary, bifurcation of expenses into capital goods, input, input services, reconciliation of expenses with P&L, disclosing details of ineligible ITC, etc. is onerous to generate and the systems may not be geared up towards the same.

Clearly, there is a need to have the reconciliations done on a month on month basis, as opposed to awaiting preparation at the end of the year. Considering that the data could be voluminous (for multiple entities within the group having multiple registrations), this may not be feasible manually. While the revenues would be readily available (State-wise) under the current filing scheme, getting details/breakup of expenses will pose a challenge. Another challenge is having the reconciliation ready and available at a transaction line item level as opposed to at a GL-code level. The department audits have not yet commenced. We have already seen Government instructions to look into the mismatch between the reporting under Income tax (in the returns) vs. that for GST. There could be multiple reasons including differences arising as a result of IND-As, ICDS, accrual and provision entries, etc. While the reconciliation will be available with Companies, the question is about timing and accuracy. Also, whether, an accurate reconciliation can be made quickly at a line item level considering the volumes involved. The requirement from authorities will only increase during the coming months, basis the annual report, audit reports, returns filed (both under GST and income tax) for the company, as well as data generated by the vendors & suppliers.

It is imperative that a thought process is put in place to understand and evaluate as to what kind of technology tools are required to be used to ensure that the relevant data is available earliest possible.  While the traditional ERP systems are unlikely to give such information in a ready manner, and even if customized, could be a huge cost issue, there is a need to look at robust and Integrated tax management solutions which can provide data with a far greater level of detailing with an audit trail.

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