It’s the final month before the most ambitious reform in India after 1991 takes shape, as per current schedule. I have been fortunate to see this development up, close & personal over last 9 months and have gained valuable experience; working with business world at large that’s coming to terms with this momentous change. In this piece, I have tried to summarise the typical issues faced by organisations, large or small; Indian or foreign, as they embark on their GST readiness journey to hopefully make it much quicker on those embarking afresh or also those finding their progress slow.
A brief caveat though as to why; or why not, my learnings may or may not be useful. I landed into this regime change almost by mistake, as I have no background in tax and technology. However, I soon realised my benign ignorance was actually not so bad because most people didn’t know enough about GST and its intricacies and path-breaking impact anyway. And at least I didn’t have any preconceived notions. So as the image above shows, it was starting from a clean slate practically for everyone, as the old school of books gets replaced by a new school on a tab.
So what are the top 3 challenges on the GST compliance journey? It is appreciating the GSTN ecosystem, familiarise with technology changes and impact on Supply Chain. The word Tax, which is where most of the attention of media or common man is given, discussion on rates/slabs, does not feature in top 3. And that says a lot, though to be fair, its core to the third part! Let us look at these, one by one.
The GST ecosystem is a layered set of intermediaries, similar to the now famous Aadhar ecosystem, thanks to the India stack motto of large-scale digital public infrastructure architecture designed for the 21st century. This envisages GSTN in the middle, surrounded by GST Suvidha Providers (GSPs) which are authorised gateways. The GSPs, in turn, would have ASPs or Application Service Providers who are interfacing with the end users, whether directly or through a configuration in the IT systems/ ERP making them ready for GST rules. Thus the old school, where the tax department either physically submits returns on gross basis or uploads the returns on a portal with the help of a simple software on user’s machine gets replaced by a new set of actors which ferry the returns, with much more richer information at line item level back and forth all electronically. Now the challenge is while most of this has been in public domain for last year or so, given the public focus on rates, this has remained in the background. Appreciation of this ecosystem and the engagement with various intermediaries, understanding their product suite, as well as potential limitations on scale & security and differentiators, are the key areas of discussion at CXO level.
The technology piece is the most puzzling piece for most people. GSTN is a highly sophisticated technology architecture developed pretty much indigenously which over a period of time is going to be the pride of the nation. However, in the run-up to the implementation, the two most common challenges are APIs and Cloud. The APIs are like rails of the digital infrastructure, not too different from the standardised gauges which enabled railway infrastructure to connect massive landmass on a huge scale, on the physical side in earlier centuries. The API economy creates standardised interfaces which makes billions of queries possible to be serviced simultaneously, as would be expected given 3 to 5 Billion invoices that need to be uploaded; and crucially, matched every month. The intermediaries above are nothing but carriers of these gargantuan data pipes and have a business model linked to flow of the data, pretty similar to pipelines that carry oil or telecom signals. The other piece is Cloud infrastructure. The world has been getting digitally connected inexorably, from its early beginnings in mid of the last century called ARPANET, which morphed into the internet, as we know today. Truly no man is an island now! Internet carries massive amounts of data as the number of connections grow exponentially, and processing this massive amount of data has become possible, thanks to the parallel development of cloud infrastructure. Cloud makes high-end technology infrastructure available for smallest users, like Google mail or a Dropbox or booking a cab or a hotel from mobile. While data security is critical for all organisations whether big or small, the cloud providers are also able to create huge security walls given their scale which would be difficult to recreate for every player. Again appreciation of these 2 inevitable changes makes the discussion complicated, for the first time anyone looks at this but gets fairly simple, once focus comes on the underlying scale, as this is the only way such an ambitious exercise could be conducted.
The critical feature of GST architecture in India is invoice based matching flowing into tax credit pass through, something that is truly innovative globally. This makes the old adage of ‘Buyer beware’ as not only to depict the quality and cost of goods/ services purchased but also on the compliance of the Vendor. This means the burden of compliance is not only on every taxpayer itself, but also to ensure for their Vendors/ Suppliers, and by extension, the Purchasers/ Dealers. Effectively one needs to worry not only about own compliance, but also of the entire Supply Chain. This is not only for competitiveness, by way of avoiding cascading of tax rates, but also to ensure a good compliance score as detailed in the earlier posts. This realisation on GST compliance being not a single party, or an in-house exercise; but in reality, a multi-party exercise which transcends organisational boundaries is missed at first view. Even at a second look, one understands and admires the beauty of this architecture, the implementation of this is easier said than done. This is probably going to be the most challenging part of GST, which will probably kick in after everyone believes that their own house is in order, only to find that it is not enough! Proactive planning and detailed preparation would go a long way to mitigate this challenge.
Dealing successfully with these major challenges, and the myriad smaller ones along the way, will ensure the GST journey is not disruption; but a route to digitisation and the promised land of analytics, automated compliance at the finger tips or on mobile and making overall governance environment so business friendly, that everyone is focussed on maximising output, automatically pay fair taxes while complying digitally.