By Pratik Jain
21/12/2009
Most discussions around goods and services tax (GST) have been confined to the basic aspects of the new levy, thus, overshadowing some of the finer points of GST implementation -for instance, the need for realigning the administrative machinery of Government and taxpayers, to prepare for GST.

Certain sectors (such as aviation, real-estate) are currently outside the indirect tax net could be brought under the purview of GST, thus, requiring them to gear up their tax function. 
 

At the Government level, the Central Government currently deals with around 1 million taxpayers, while the States administer more than 7-8 million taxpayers.  In keeping with the GST principle of widening the tax net, if the Central Government were to expand its taxpayer base to 7-8 million then the Government would have to look at large scale recruitments.  Similarly, the Central tax collection agencies have little experience of dealing with the trading community, for indirect tax matters.  State tax authorities have also no expertise of administering service providers, who are required to pay at present only (Central) Service tax. Therefore, one hopes that before GST implementation, there would be extensive training sessions to groom the tax officers for the new levy.
 

Thus, it is apparent that under GST, unless a suitable model is evolved for maintaining status quo in terms tax administration, both authorities as well as taxpayers are in for a big challenge. While these issues will be ironed out over a period after GST introduction, an administrative setup that absolves the taxpayers from such challenges in the first year itself would be desirable. 
 

Central Government may relinquish its right of administration over the traders who currently only interact with the State authorities.  Any CGST payable by them may be collected by the State authorities, on behalf of the Centre.  Similarly, the service providers may be required to pay SGST to the Central tax authorities, who would in turn pass it on to the respective States.  A similar arrangement is contemplated even under the existing Customs Act (Section 6), which entitles the Central Government to entrust any functions of Customs authorities to any officer of the State Government or local authority.
 

This seemingly simple administrative model also has its own set of challenges.  Firstly, it can work only if the CGST and SGST provisions are aligned to a significant extent, and the tax officers are not required to put in extra efforts to understand both the laws. Also, the mechanism for empowering (and motivating!) the Central tax authorities to assess taxpayers for SGST dues, raise demands, impose interest/ penalty, etc., and vice-versa, would also need to be evolved.  Clearly, this remains an essential primary need while introducing a unified GST.
 

The HR teams of taxpayers too would have a tough task of realignment and reorientation of some of their employees.  This is especially relevant for companies and entities which would come under the tax net for the first time.  Such companies would need to create new positions, hire more people, and train them for a new tax on which they have not worked before.

In a manufacturing setup, the ‘excise managers’ at the factory would also need to undergo extensive training to shed the Excise duty legacy, and gear up for GST.  This is because most of the concepts under excise (such as taxable event, valuation provisions, related party transactions, etc.) will witness substantial changes under GST.
 

Similar issues would arise with respect to increased burden on tax managers who currently deal with only one tax authority, but are required to deal with both Central and State authorities under GST.  A telecom company, for instance, may need to recruit more tax professionals at regional level to deal with the State authorities on SGST.  In fact, such service providers may also be required to go for State-specific or regional registrations and computations for CGST purposes, if the concept of ‘centralized registration’ is discontinued under GST.
 

Apart from training the tax team, some learning sessions would also be required for other business functions within the organization (such as finance, markets, IT, and senior management). 
 

To conclude, GST will not only impact the finances, but would also affect several other activities of companies, including human resource management.  In order to ensure a smooth transition to the new regime, organizations would need to assess the overall impact of the new levy on all facets of business, and carry out the requisite changes in a timely manner.  For a successful implementation, clearly the administrative aspects of GST would have to be taken care of by both the Government, as well as taxpayers.
 

Pratik Jain is Executive Director, Indirect Tax, KPMG in India. The views expressed here are author's.