With a country as large and diverse as India undergoing a major tax reform, it is not unexpected to see massive confusion at all the levels of a supply chain. Be it a manufacturer, retailer or a supplier, every level has questions about the computation of the taxes. With the Goods and Services Tax comes a plethora of compliance liabilities for business entities. A lot of electronic data formatting and calculations need to be done, records need to be maintained, and minute details need to be taken care of. All of this also must be completed on time and to shifting due dates.
Now with a lack of clarity in the market regarding GST, complying with all these necessities mandates that tax payers take the help of a professional to avoid the possibilities of any error or rejected returns. Agreed, that this aids the growth of professionals like chartered accountants, company secretaries, cost accountants, tax consultants, etc., but it also increases the chances of human errors, especially with frequent filing deadlines. Thus, hiring such professionals is not a sure-shot way of filing the GSTR accurately. To overcome manual errors, a very convenient way to comply with the GST norms is using cloud-based automation solutions through certified GSPs (GST Suvidha Providers) or ASPs (Application Service Providers).
Apart from overcoming manual errors, there are numerous other ways in which GST automation simplifies this new tax reform, thereby effectively overcoming the complexities associated with GST:
- Reduces audit risk
First and foremost, the automation of GST filing ensures that all the transaction are recorded correctly. A good automation solution will provide defense in depth against error as well as ample opportunity to review and crosscheck results. Thus, the possibilities of a wrong filing of tax become negligible, and hence any errors which could have arisen in the future due to false auditing are entirely avoided.
- Manage Input Tax Credits
Probably the single biggest financial risk that comes with GST is the requirement for businesses to actively manage their input tax credits. The key element here is that one must collect and remit the full GST tax amount on each transaction, then claim credit for prior taxes paid on the input goods and services that produced the tax items. This means that between inputs and final sale, operating capital becomes trapped in the form of not yet claimed credits. The impact of this has become very clear in recent months for exporters who have many Crore rupees tied up in ITC collected at the border for which no refund mechanism was available.
What Automation Solution should one choose?
Choosing the right automation solution for GST will be key to help businesses save money and avoid non-compliance costs. Automation will help businesses navigate the GST faster and efficiently as it will be humanly impossible to manage the extremely high volume of reporting and GST transactions as information will cross a number of check points.
A good automation solution will focus on timely reporting and reconciliation to ensure that data matches up and down the supply chain. All parties much agree early and often on transactions to ensure the free flow or credit and not cripple small businesses in the process.
Key capabilities to look for are:
- Reconciles invoice
Manually ensuring that all the transactions match with each other, is a tedious task. Thus, with the automation of the Goods and Service tax, proper records are maintained online which facilitate invoice matching between both the seller and the buyer. Thus, any discrepancy can be highlighted at the root level and can easily be corrected without much hassle in the future.
- Highlights mismatches
In case a mismatch does turn up between your paid and your actual calculated amounts, it gets highlighted in the initial stages of the process and post that, you can make the change in the payments almost immediately. Similarly, if there is any ITC that you can claim and have filed for it, an automation system quickly brings it to light if there arises any discrepancy between the calculated amounts.
It is interesting to note that these are duties traditionally given to a CA or tax practitioner by the business. In order for decision makers to manage those credits in the interest of cash flow, they need to consider tax implications throughout the month in areas where the CA has traditionally handled details after the fact. Given this, Automation is critical to keep the management overhead low.
Simplifying Features – Besides the key capabilities above, one should also consider:
- Timely Compliance
The automation of the Goods and Service Tax gives you the freedom to file for GST returns from within the comforts of your home. You do not need to wait for long hours in a queue or fix an appointment with a tax consultant or a chartered accountant. The right automation solution will encourage data processing early and often, as close to the time of transactions as possible. This will ensure that all you need to do is have the correct details, and you will be able to complete the entire process on time, with required effort spread across the entire reporting period.
- Report generation
GST requires a lot of paperwork to be done and it can become a mess when it comes to organising them properly. Keeping a proper record of all your documents and a track of your past returns and payments, automation of GST should provide you with comprehensive reports to ensure that you do not leave out anything. This substantially reduces the possibilities of making mistakes and incurring further costs in the future.
- Correction assistance
If you do end up making some mistake while filing for your GST returns, you do not need to worry about getting into a lot of hassles. The automation of GST makes it convenient for you to fix your mistakes and errors without running around in government offices asking for solutions. Apart from providing you with immediate solutions, it also facilitates easy payments of penalties, thereby providing you with the best correction assistance possible.
- Safe data keeping
Isn’t it almost impractical for one to keep track of all the transactions done over the last few months? How big of a deal is it if you are asked to keep a proper record of the taxes paid in the previous few years? To handle all the paperwork and not have your mind boggled by it is quite impossible. GST automation has the feature of keeping track of all your tax returns and filings in the past, thereby acting as a safe data keeper for you. There is no possibility of any data being lost anymore.
- Additional Automation beyond basic returns
Great automation solutions will extend beyond the base GSTR 1 thru 3 monthly returns, annual returns, etc. There are myriad other process that will benefit from automation including registration events, refund requests, e-way bill generation & management, export compliance requirements, etc. The strongest ASPs will add these capabilities over time as the GSTN provides those APIs.
It cannot be denied that GST is one of the most significant tax reforms in the history of India. Like any other new regime, GST has its own set of advantages and disadvantages. It is complicated indeed, but then again, what are some complexities if you consider the broader picture of a better Indian economy in the future. Complying with the GST norms require either manual help or automated assistance, the latter being instrumental in simplifying the complexities associated with the Goods and Service Tax. While manual help has high risks associated with it, automation while streamlining the complexities of GST also efficiently lowers the chances of errors. As an added benefit, GST greatly encourages businesses to upgrade their own processes and IT capabilities, thereby making them more efficient and competitive in the long run.
Avalara is an experienced application service provider (ASP) and partner of authorised GST Suvidha Providers (GSPs).
(Views expressed in this article are of William Rau, Senior director, Engineering, Avalara only.)