There is a lot of discussion around Goods and Services Tax (GST) and the impact that it may have on small and medium businesses. Large enterprises are already preparing themselves for the change that they may have to make in their current system to comply with the new GST regime. There are, however, certain doubts among small and medium enterprises (SMEs) on preparation required for a successful transition into the new tax regime. In this article, we will see how SMEs must prepare themselves for the migration to the new tax structure from the current one.
According to the model law, every legal business entity registered under any of the existing laws will be given a registration certificate on provisional basis. This will be issued on the appointed date which is April 1, 2017.
This provisional certificate of registration will be valid for a period of six months, during which the said entity can furnish the required documents. This provisional certificate will ensure that a registered taxpayer need not enroll themselves again under the new GST regime. We can conclude that an automatic registration under it will be provided on the appointed day.
One must, however, keep in the mind that this certificate is provisional and that the taxpayer will need to furnish some additional documents via electronic media, which will be notified to the concerned person. A final registration certificate would only be granted after that.
If the recent developments in the GSTN are to go by, all registered taxpayers in the current law will be migrated to the new tax procedure by November 8, 2017. Post that, the department would start collecting the required additional documents. GSTN is providing the IT infrastructure for the implementation and further administration of GST.
Input Tax Credit
According to the model GST Law, a taxable person can take credit of the tax paid and carried forward in a return that would furnished under the previous law regime.
The said credit will have to be taken in the person’s credit ledger for a period before the appointed day.
The taxpayer must furnish proof of his/her last return filed under the old regime. He/she should make sure that all input taxes paid are included in it, thereby claiming the credit of the same under the new regime.
For example, let’s consider April 1, 2017 as the appointed day for the GST rollout. The taxpayer must make sure that he/she has taken into account all the stock lying on March 31, 2017 and claim input credit during the filing of returns for the period ending March 31, 2017. The taxpayer, thus, must ensure that all such goods and services are eligible for such a credit under the new GST law.
Input Credit on Capital Goods
An input credit on capital goods that have been purchased in the previous regime will be allowed in the new regime as well. The provisions for transition as specified under the model GST Law make clear references to such an approval.
Credit of Excise Duty or Additional Customs Duty
This is probably the most critical provision of transition under GST. Under the present tax regime, a trader is not allowed a credit of excise duty or additional customs against excise.
The tables, however, change in the new regime. Under the new tax regime, a supply of such goods will fall under GST but a credit of excise or additional custom duty will not be allowed.
The immediate result of this would be the levying of GST on goods which have already been taxed under the existing tax procedure, without any credit availability. This may lead to cascading and distortion of prices.
This may also result in stock returns from dealers and traders to the manufacturers before the appointed day, and further making a new purchase subsequent to that day. Such situations may lead to panic among manufacturers and in turn affect their profits and returns.
Under the composition scheme of the new regime, the taxpayer must keep himself/herself in the know how about the implications that a migration from the old regime to the new regime may have.
Now, such a migration is expected to have a huge impact as the limit of the turnover under GST is Rs. 50 lakh, as against the existing Rs. 10 lakh.
It would, therefore, be safe and fair to assume that many taxpayers will move from being regular taxpayers to paying taxes under the composition scheme.
The opposite of this would be wherein dealers, who are under the composition scheme, would be transformed into a being regular taxpayers. This may happen if the goods they are dealing in does not qualify under the exemption list of the new regime.