GST – A Huge Area of Practice Opportunities

Background

The total indirect tax revenue in 2016-17 was Rs.17 lakh
crore. It has been guesstimated that about 30% of traders, small manufacturers
and service providers who are liable to be registered and pay duty/ tax have
not registered in the past. They were part of the “grey/ parallel economy”.
There is a business of fake bills without sale or service provision presently.
This sector is expected to close down substantially due to the matching concept
under which GST needs to be paid for credit to be available. Some part of this
segment may be forced to join the mainstream tax payers over a period. Some
sectors who still have the highest rate of 28% with or without additional
cesses could try and keep the entire transaction outside the recording and may
risk the seizure of their goods and demands.   

The total number of registered assessees in about 6 months of
its implementation is expected to cross 1 Crore!!. This could be the result of
demonetisation as well as withdrawal of exemption and broad basing objective of
GST. The need for the receiver of the services to pay under reverse charge for
all unregistered supplies including raising of invoice, classification, payment
may lead to all businesses to avoid any unregistered supplies whether for goods
or services. Dealers and Service providers who do not wish to stop their services
to the trade, industry or businesses would now voluntarily register to ensure
clients do not have to comply on their behalf. This maybe even if they are
eligible for the exemption upto Rs. 20 lakh.

The CA Advantage

The knowledge of accounts, costing, direct/ indirect tax
laws, company Law and commercial laws makes a CA’s quite complete from legal/
tax side. This coupled with the experience from understanding businesses
through conduct or audit, providing opinions, preparation/ certifying of financial
statements, representing before many financial and tax authorities provides a
CA with a deep understanding of business.

The total number of CAs who have attended at least a 20 hour
GST awareness as on date who are in industry and practice maybe around
1,00,000. As on date around 5000 CAs are learning every week in seminars,
workshops, certificate courses conducted by the ICAI, study circles, BCAS and
other associations across the country.

The non-qualified consultants who outnumber us today
operating in indirect tax area may find that the scope of being an intermediary
between the client and the officers is restricted. Those in advisory who have
learnt GST well and have some accounting knowledge may continue to support
clients in the GST regime. They would of course need to take the services of
CAs for the mandatory audit which would be started to be conducted post May
2018. 

The CAs already practicing in VAT, Service Tax and Excise /
Customs would find it easier to understand the GST which is a mixed bag of all
these laws. In the present GST Act and Rules 2017, we observe that most of the
provisions have been borrowed from VAT and to some extent service tax and
excise. The GST law was supposed to be simple and clear, but as it stands today
is very cumbersome and it may not be possible for SMEs to comply without
professional assistance. 

The total number of CAs (delegates) who have attended various
type of GST related CPE awareness / training sessions as on date is in excess
of 1,20,000 with 6,000 additionally being trained every week either through the
indirect tax committee initiatives or the various regional councils, branches
and associations. Even if some have gone for multiple programs, the minimum
number of CAs who are aware maybe in excess of 50,000.

Therefore, in the view of the paper writer, the CA would be
the first option for all enterprises of turnover above Rs. 2 crore. If they are
unable to accept, only then other professionals would be considered as an
option.

Opportunity for Image Makeover

It is indeed sad but true that a small proportion of CAs are
able to create a negative perception of the profession at large. However, the
fact that in many wrongdoings by trade/industry, the CAs are being implicated/
targeted indicates that the view of the public/ media needs to be reversed. The
common perception of the “black sheep” of our profession is normally not
discussed, much less penned. The paper writer has attempted to list a few areas
where we could improve and avoid such allegations:  

1.  Do not suggest/ manipulate the accounts.
Always give accurate certificates based on evidence (copies to be in working
papers) especially on the claim of credit on stocks, credit admissibility etc.
This would compel the tax authorities do place weight on all certificates
issued by us.

2.  To avoid assisting / helping clients in tax
evasion. It maybe far better to provide a true picture to client and stress on
the advantages of compliance. The “trust” factor which is very important to be
enhanced in the GST regime.

3.  When he gives opinions especially on issues of
continuation of business rates and credit, see that there is a clear
communication of what the client wishes in writing. If not there, communicate
what is expected from us to client and then do a professional job clearly
stating the assumptions if any and not trying to reduce the tax impact. This
would build respect of the client over time as well as the GST officers.  

4.  CAs can and need to be more communicative. We
also most times have not been trained in drafting. Complete communication,
clear case law reference, differentiating the adverse judgment, attaching
expert opinions/ books (especially in classification) and concluding logically
could stand us in good stead.  

5.  CAs would do well to escalate to higher level
officers when lower level are not helpful to resolve issues of the clients.
This should always be done in writing. The results of this practice has been
found to be favourable in the present regime and in GST would be far more
successful.

6.  We can improve in many more areas including
professionalism in dealing with the client viz., keeping commitment for
delivery of requisite quality in time, keeping the service motive etc.

These negative perceptions over time are to be overcome with
honest, ethical work, demonstrated over and over. The law is moving towards
transparency and the days of the intermediaries seem to be getting over. When
the VAT law came, the pure intermediary population came down by about 30% from
2005 onwards.   

Humongous Opportunity under
GST

The distinction can be made between the pre / post GST period
openings / service streams.

Role – Pre-GST period

This is a one-time opportunity focused on GST preparedness of
clients. Specific contribution by the professional could be:

a.  Assist in classification and arriving at the
rates applicable using the Harmonised System of Nomenclature (HSN) as well as
the interpretative rules set out in the notification. Similarly, carefully
advising on availability of any exemption based on the notification ensuring
that the conditions if any are complied;

b.  Analyse the industry impact considering the
global and Indian situation of the product / service. This study may also have
to include the major vendors and customers;

c.  In case of unintended hardship to some
sectors- representation to the drafter would be in order as the level of
listening presently is very high. This could be done upto a period of 6 months after
the implementation date;

d.  For the walk in clients who have not done an
impact study, the clarity on the major impact on the client under GST due to
indepth understanding of the business could be a value add;

e.  CA could be part of the core team of client
for transiting into GST smoothly without business disruption and safeguarding
of the margins as a knowledge advisor;

f.   Understanding legacy tax systems at client
workplaces so as to provide appropriate advise on migrating to better systems/
ERP or suggest modification to make the existing systems GST compliant;

g.  Assisting in preparation of a strategic plan
for procurement and marketing systems of clients needed under GST. For example,
supporting in decisions on: Closure/ reduction in godowns and branches; direct
sale through e-commerce; evaluation of the working with C&F agents; in
house/ outsourcing the distribution function to logistic companies; sourcing
inputs at lowest cost within shorter time; linking to the ERP of the customer etc.;

h.  Suggesting the changes in accounting software
and internal control systems to suit GST. Test and confirm the robustness;

i.   GST awareness at initial stages and training
for management, staff, customers, vendors of clients on ongoing basis
especially the operational team consisting of the marketing and purchase;

j.   Vetting and suggestion to modify agreements/
contracts/ major purchase orders overlapping or supplies to be made in GST
regime;

k.  Ensuring that the credits in the past are
examined for their eligibility and those missed are availed. The reconciliation
of the credit as per books to the returns before GST is implemented can be a
value added activity. This would include validating the last return. The time
window for this is limited to a couple of months after implementation;

l.   The verification to ensure that the credits
carried forward are eligible and complete. The deduction for the unreconciled
forms as provided is made and if negative, the decision not to claim the carry
forward; 

m. Ensuring that the claim of credit on stock in
hand is maximised by ensuring purchasing with excise duty paying documents as
well as proper stock recording especially with job workers and agents and
ensuring well thought of stocking policy;.

n.  Reviewing the various business transactions to
examine whether closing out the transaction in the pre GST or post GST period
is advantageous;

0.  The students of CA- the future CAs and staff
in the CA office would also require to be taught the new law to enable them
also to actually do the verification. Review and audit in GST and confirm that
the transition mistakes are not material;

o.  Many CAs have specialisation in information
technology and some even hand on consulting skills in ERP environment. These
skills could ensure that the client would get his IT integrated and able to
comply with the complex needs of GST compliance.

Role – Post-GST

The implementation of GST would bring many challenges for
trade / industry and for us, opportunities to serve:

i.   In the initial stages of GST implementation,
there would be many doubts which are not covered in the new law. There may also
be gaps in knowledge of GST at various levels in the organisation. These are
likely to unintendedly result in denial of registration, interruption to do
business, loss of eligible credit, old law risks and exposures carried forward,
inadvertent non-compliance in GST. There would a period of uncertainty and need
for someone to confirm the myriad issues arising. The internet (Google) at such
times may not be effective as too much of inaccurate/ incorrect suggestions in
the initial stages are expected. The proactive professional handholding and
quick response may not only ensure continuation of the clients’ business, but
enable them to take advantage of the changes in the business structures;

ii.  Regular online documented service to the
functional head of clients’ business;

iii.  Assisting in the filing of the 1^st
return, claim of tax credit on stocks in hand accurately;

iv. Review the compliances in transition. It maybe
noted that the disputes in GST would come normally after 3-4 years and at that
time, rectifying past errors would well nigh not be possible;

v.  A one time comprehensive review after 3 months
of implementation to ensure GST compliance;

vi. Regular review and reconciliation on credit
matching and recovering credits lost from the vendors in case of payment made
on gross would also be required;

vii. Once GST stabilises over a year or so, the
focus would be more on compliance which means a regular internal audit of GST;

viii.  The GST audit by CAs in the year 2018 would be
a watershed year for the profession to demonstrate that we as CAs are competent
and knowledgeable; Also to assure the revenue department that there is no need
of invasive investigation or audit by tax officers;

ix. Routine tax assignments for payment and filing
of returns would see a spike at least in the initial stages of uncertainty;

x.  It is true that if one can avoid a dispute in
tax it is better. Therefore, a preventive exercise of early correction/
disclosure could avoid or mitigating the disputes allowing clients to
concentrate on their core activities;

xi. In case of dispute, look at the possibility of
passing on the impact where credit is available as an option. If not possible,
then support in making replies based on fact as well as legal principles.

xii. Support in resolving disputes where it cannot
be mitigated due to interpretation differences or due to demand raised by
revenue.

Conclusion

This new levy is bound to come up with many obvious
challenges due to the law being in the process of being drafted. It is expected
that the rough edges of the law would be ironed out in the period of 6 month to
a year post implementation of GST. This was our experience in Company Law in
the past few years. 

The extent of making use of the opportunities would largely
depend on understanding the law and preparedness for what is not covered in the
law. In the words of Abraham Lincoln – “Give me six hours to chop down a
tree and I will spend the first four sharpening the axe”.