GST impact: How enforcing input tax credit can hurt the SME economy
Long before the Goods and Services Tax (GST) got Parliamentary approval last week, there were opportunities through draft laws for accountants, lawyers, taxpaying enterprises — even technology companies—to participate in its creation. "The government and administrative machinery are dialogueoriented," notes Bharat Goenka, managing director of software company Tally Solutions. Yet, the taxpaying community and government underestimated a statutory stipulation that endangers India’s small and medium enterprises (SME): input tax credit. "And that is our collective responsibility." Goenka, who had written to the GST Council about it last year, blogged on Tally's website in early March ('The Sin of Being Small'). Enforcing inputtax credit can hurt the SME economy. Under the GST Act, an enterprise can reduce the tax already paid on inputs at the time of paying tax on output; this is commonly referred to as 'input credit.' It entails monthly computation of every B2B transaction with every party that a single company does business with. For enterprises, this means capturing every invoice for it to be corroborated against how the corresponding party (supplier or buyer) recorded that same transaction. This enables tax authorities to check if any business is understating number of business transactions and value. Such computations have to be done across more than 6.5 million businesses. This mindboggling activity involves anywhere between 1.2 billion and 2 billion invoices getting uploaded every month. It makes the underlying technology (or platform) absolutely vital.
Simply put, GST accepts an indirect tax settlement only after the two parties (buyer and seller) agree on every single transaction, says Jaskiran Bhatia, partner at audit and financial advisory firm Deloitte Touche Tohmatsu India. "At a transaction level, you do a reconciliationandmatch." The GSTN infrastructure is crucial to capture that transactionlevel data. It will evolve into a grand data store.
SOURCE - The Economics Times