Companies, consultants grope in the dark to meet GST deadline

While the government wants to rollout GST from July 1, lack of clarity on tax rates has made it difficult for companies to set aside funds for future tax liabilities.

By M Saraswathy Monetcontrol.com

The office of a major tax consultant is brimming with activity — on a Sunday. Its employees have been working weekends as well as holidays and have a special team for multiple clients. Their sole objective: preparing for the July 1 rollout of the Goods and Services Tax (GST).

While the Cabinet on Monday approved the GST draft laws, the exact rates have not yet been disclosed. As a result, companies are working on risk models across all the slabs keeping in mind the state and the type of product.

There is expected to be a four-tier tax structure of 5, 12, 18 and 28 percent with differences between states for value-added tax and excise.

Further, some discrepancies are also expected on the type of the product.

For instance, a food major is involved in a discussion with the tax authorities on whether their product will be considered a coated wafer biscuit or chocolate. Similar such disputes of confectionery companies have been going on in several parts of the country since different categories such as candy, toffee, sugar-coated confectionery and chocolate attract different rates of taxation.

MS Mani, Senior Director at Deloitte Haskins and Sells, said that they have been working with both large and small companies to help them understand the quantum of the tax liability they could face. “Various scenarios of taxation are being analysed and companies being apprised of what the outcome will be,” he said.

Sample this: Almost 80,000 items will have a different rate of taxation allocated to them. For instance, if it is a toffee, the rate of tax will be different in 29 states considering VAT and excise will be different. Hence, the particular slab under which it falls in different states will be different.

While the government has said that it will adhere to the July 1 deadline for implementation of the GST regime, lack of clarity on tax rates has made it difficult for companies to set aside funds for tax liabilities in the future.

Not just that. Even technology will have to be integrated to ensure that all payments and receipts of any funds are only made through electronic means. Mani said that this is a huge challenge for smaller companies where there were payments still being made in cash.

Apart from larger tax consultants such as the big four, smaller entities have also been engaged by public sector entities like banks and insurance companies to help them migrate to a new regime. These companies are shortlisted based on competitive bidding to ensure that they do not face a higher burden of taxes in the next financial year.

In sectors like insurance where the registered office is in one location may need to have such offices across all states for tax computation purposes. Apart from that, the premiums will be based on the place of residence of the particular policyholder and they have already begun work to collect and update data of thousands of such people.