Though the wrangling over the Goods and Services Tax seems interminable, it is likely to become a law by June, 2016, setting into motion irrevocable tax reforms that will mark a paradigmatic shift in the Indian taxation system. In such a scenario, one of the industries most affected by it would be software companies providing business applications as a service to enterprises.
There will be far-reaching consequences for accounting software such as Enterprise Resource Planning (ERP) which is used by the corporate world to generate invoices and payroll due to the far-reaching nature of the change. The smallest change in the taxation chain leads to a domino effect, affecting the entire structure of tax accounting from the top to the bottom. In such a context where the smallest change in the taxation system upsets the apple cart of accounting companies, one can very well imagine the sheer number of changes that would have to be made in the software to make clients tax compliant. It would basically entail developing the tax accounting systems from scratch.
Fundamental Changes Effected By GST
The GST would be a comprehensive indirect tax on manufacture, sale, and consumption of goods and services throughout India. It will replace taxes that the Central and Stategovernments levy. Tax would be collected at each stage on the basis of the input tax credit method, allowing registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. Goods and services are not distinguished from one another and are taxed at a flat single rate in a supply chain till the goods or services reach the consumer. In the dual-rated GST system, while exports are zero-rated, imports would be taxed two way: Central GST and State GST. Thus, all state-administered taxes such as Excise, VAT, Octroi, and Service Tax, will be replaced by a single unified tax across the country and would be divided between the Center and the states.
The government expects the GST will unshackle India from red tape and improve the ease of doing business but how the industry will take to the new change will get apparent only after the implementation of the law. The changes in the proposed indirect tax system could reduce transportation cycle times, enhance supply chain decisions, lead to consolidation of warehouses, etc. which could help the logistics industry reach its potential in terms of service and growth.
Leading Market Players Building Tax Compliant Software Ecosystems
With GST’s imminent implementation, the logistics industry should start exploring different supply chain models with their clients and at the same time develop a completely synchronised ERP accounting system to support inventory supply management as required under the GST regime. Multiple modules will have to be created such as those for input credit, destination system, twin rates, exclusion, and other factors in the GST.
“The GST is basically a complete overhaul of the existing tax system. We have to start preparing for the transition. We are developing our software and we will help Indian enterprises make the transition to GST painlessly. Our software will support the new compliance requirements,” said Shashank Dixit, CEO, Deskera—the leading business software provider in the Asia-Pacific region.
But coping with tax requirements may mean extra financial burden for small and medium enterprises as far as tax compliance is concerned.
“The transition may be difficult for companies using old systems, particularly, if companies that provided them with the software in the first place have shut down and they do not have the codes for development any more. In such a case, it be difficult to adapt the software to the changing times for moving beyond Excise, VAT to GST. Such enterprises will have to go for new vendors, who have the technology to deal with GST,” added Dixit.
Industry pundits are keeping their fingers crossed as several contentious issues remain, such as the clear definition of supply, supply chain management through warehouse engineering, credit allowance during the transition phase, classification of goods and services under GST, etc. The industry eagerly awaits clarification on those issues. And there is no time like the present.
Is GST the change that will define market leaders in the business software sector? Or will it be the nemesis of several of them? Only time will tell the answers to such questions.