Slicing the pie: GST offers new opportunities for tax consultants, IT firms

The all-new Goods and Services Tax (GST) has created chaos and a sense of panic among existing and prospective taxpayers. But in spite of it all, the new era will throw open huge opportunities for information technology (IT) companies, enterprise resource planning (ERP) solution providers, tax consultants and the legal fraternity.

GST is a complete overhaul of the old indirect tax system, and what makes it even more disruptive is the fact that all transactions under GST - right from registration and raising invoices to filing returns and paying taxes - have to be done online. There would be no manual filing of returns, no paper invoices and no physical payment of taxes. It also means all existing assessees and those who are likely to come under the tax net after its formal launch on July 1, have to adopt a digital interface to interact with the tax authorities and move their internal operations to the digital space.

"GST is a tax administration system that does not accept manual compliance. The only way it can be done is by interfacing with the tax administration digitally. And the quantum of information that a company has to provide is also significant [in this context]," says R Chandrashekhar, President of the National Association of Software and Services Companies (NASSCOM), the lobby group representing IT and business process outsourcing companies. According to him, the detailing required under GST continues up to the invoice level, and companies, which have already digitised their internal systems, would find it easier to comply. But there are thousands of small businesses which still work manually or on rudimentary digital systems that might not be adequate for GST compliance.

As per the GST Network (GSTN), the company that has created and maintains the IT framework for GST, there are eight million excise, VAT (value-added tax) and service tax assessees under the existing system, out of which 6.5 million have registered with the GSTN. But the number of micro, small and medium enterprises (MSMEs), according to government data, stands at 36 million and many will now come under GST's purview. These are the businesses which must get GST-ready and there lies the opportunity for most businesses mentioned above.

Chandrashekhar thinks there will be a significant rise in IT adoption among small and medium enterprises (SMEs) as large companies are already fully digitised. As most of the IT requirements will be generated by the SMEs, the firms that provide services as a platform hold an automatic edge as their clients need not invest a fortune in software or hardware. All they require is a plug-in to the platform to use the services.

But the NASSCOM head does not want to hazard a guess on the quantum or the value of the business opportunity that could be generated by the digital drive ahead of GST implementation. "At this point, we do not have any quantitative estimate of the opportunity," he says. Sudhir Singh, Managing Director (Sales and Marketing) at Marg Compusoft, an inventory and accounting software provider, says the IT requirements of the SMEs/MSMEs alone could be worth Rs 40,000 crore in a span of two years and that, too, is a conservative estimate. Even if two crore out of the six crore new businesses come under GST in the next couple of years, and each spend Rs 20,000 on software and hardware, these numbers could be reached, he points out. The average cost of the software that Marg provides is around Rs 12,500 a year.

The Compliance Trigger

In spite of all the talk about simplification, the final shape that the five-tax-slab, dualauthority (the Centre and the states) GST has taken is exceedingly complex and may result in huge confusion among taxpayers. Therefore, a lot of action is bound to be seen in the compliance space and almost everyone could be making hay.

ERP solution providers will continue to gain business as GST requires companies to change their internal systems and realign with the new tax regime. In fact, two different categories of entities have come up ever since the GST contour started emerging. These are the GST service providers (GSPs) and the application service providers (ASPs).

The primary role of GSPs is to act as facilitators for uploading invoices and returns. On the other hand, ASPs will provide more value-added services such as processing raw business data and entering the same into a GST-compliant format to be uploaded on the GST Network.

As GSPs will directly interact with the GSTN system, they have to be approved by the latter. So far, the GSTN has selected 34 entities while 160 more have shown interest. In contrast, anyone can operate as an ASP. The government or the GSTN has no role in their selection.

As GSPs offer basic services, they cannot charge 'premium' fees. Neither has the government fixed any minimum fee for any of the services they offer. To reverse that, some of them are working a hybrid model and offering value-added services to earn 'premium' fees.

Most of the GSPs are keeping their pricing strategies under wraps for competitive reasons, but those like Piyush Kumar, Chief Executive of Taxmann, says his company is charging Rs 8,500 a year for basic services such as uploading invoices and returns, and handling return management. Taxmann accepts per-transaction fees, and each transaction will cost 49 paise. Under this plan, each upload or download will be considered a transaction.

Ankit Agarwal, Managing Director of Alankit Group (another GSP), says that the market is looking at servicespecific pricing models. "There will be an invoice model where charges depend on the number of invoices uploaded; an API (application programming interface) metering, in which every time you hit my server, I will charge you certain paisa; a GSTIN (GST Identification Number) model, where I will charge a fixed amount per GSTIN, a returns model and so on," he details. But are these fees adequate to guarantee a sustainable business model? The GSPs, and most other service providers for that matter, are banking on scale.

Agarwal says there will be 300 crore invoices generated every month, and even if Rs 1 is charged to upload each invoice, it will be a Rs 3,600 crore opportunity annually. "Moreover, each entity has to file 37 returns each year, from each state. On average, if each of them is registered in five states, there will be four crore (80 lakh x 5) GSTINs. If each of the 37 returns is filed every year for each GSTIN, there will be around 150 crore returns filed every year. If we charge Rs 100 for each return, we have a window worth Rs 15,000 crore," he adds.

The Strategy Boost

In the current system, the tax is applied only after sales happen, but post-GST, the tax will be levied when the goods move. Given this paradigm change, companies will have to realign their business strategies and rethink their inventories, pricing and warehousing. All these will require restructuring and consolidation, opening up opportunities for ERP solution providers like SAP, Tally and Oracle, as well as financial and legal professionals.

Commenting on GST's impact, Neeraj Athalye, Head, GST Adoption, at SAP, Indian Subcontinent, says, "A lot of clients would start adopting e-commerce because, in that scenario, I would only shift the goods when I receive an order from a customer. I would avoid the stock-and-sale model because, under GST, the tax is applicable when the goods are moved and not when they are sold."

He notes that SAP's ERP solutions will help clients simulate the what-if scenarios and arrive at optimised pricing and effective stock-and-sale strategies.

Athalye sees the opportunities (for ERP solution providers) arising from five main areas - customer-facing processes (sales, stocks and more), procurement (getting vendors ready for GST), supply chain management, manufacturing and compliance. He also thinks euro 500-800 million worth of business could happen over a two-year period due to GST implementation. Accordingly, SAP is ready with an array of solutions ranging between Rs 10 lakh and Rs 10 crore.

Litigation, Data Analytics As discussed earlier, there could be huge confusion among existing and prospective assessees when GST will kick in, and various provision of the new law will have to be interpreted across various contexts. Again, this may lead to massive litigations in the first couple of years, says Pratik Jain, Partner and National Leader, Indirect Taxes, at PwC.

While a rise in tax litigations is not good news for the government - the legal and arbitration channels are already struggling to clear backlogs - it is certainly bracing for tax lawyers and consultants. Jain says PwC has recruited 200 professionals over the past one year just to ramp up its GST team. Bipin Sapra, Partner, Indirect Tax, EY, says his company, too, has recruited as many people to service GST requirements.

Finally, the new tax regime will unleash a data deluge, which will be of immense value. The data gathered will throw up many trends and patterns, ushering in better business intelligence that can benefit both businesses and the government. This can also be a big income generator for data analytics and software firms. The only catch: Wherever data is involved, its misuse is also a concern.

"There will be a need for some regulation around data use because that [GST] data is extremely valuable. Although it should not be misused, the data should be utilised [for the right reasons]," says Chandrashekhar of NASSCOM. ~