The IT Channel is very optimistic about the new tax regime. However, they seek more clarity on the complex components of the new taxation policy that will have a greater impact on their business
With July 1 for the rollout of historic Goods and Services Tax (GST) getting closer, organizations across the industry domain are gearing up for the new tax regime that aims to introduce uniform taxation in India. Touted to be a revolutionary change brought about by the Government, GST is expected to eliminate several direct and indirect taxes to provide ease to business owners and curb tax evasion. The IT Channel is very optimistic about GST. However, they seek more clarity on the complex components of the new taxation policy that will have a greater impact on their business.
Disappointment over New Tax Slab...
While most trade bodies have welcomed the GST initiative, channel partners seem not fully geared for the new tax regime. Partners have expressed disappointment over the GST Council’s decision to fix 18-per cent tax rate for the IT products and services, which is 3-per cent higher than the current 15-per cent services tax. There is also an ambiguity among partners on the different taxation rates for Central GST and State GST. Until now, most of the IT products have been put under the electronics, electrical and home appliances category. Partners opine that different tax slabs for different categories of products would increase the prices of certain IT products and also create complexity in the tax computation. Also, they say that imposition of cess on IT products and certain exceptions may dilute the basic purpose of “One Nation One Tax”.
“The channel as a whole is not prepared for the major challenges of reportage demands of the GST regime. We have consulted Chartered Accountant bodies, experts from government offices, but things are not at all clear. Majority of our business being service business, we just have to charge applicable percentage, which makes it easy for us on services and which we are ready for. However, partners are not ready for reporting and the number of reports they have to file. My question to the government will be: If the difference is payable from a particular date, are we going to be allowed input credit for service tax and VAT we have paid already and on which credit is not available currently?” asks Kshitij Kotak, Chief Innovation Officer, Fortune Grecells.
Many partners believe that GST will lead to shortage of products that will result in increase in prices as supply will be short due to low inventory. “GST will change the way we do business. We are still waiting for more clarity set off to be taken on closing stock as on 30th June, 2017 as it will have huge impact on doing business.
Initially, there will be shortage of products as all dealers are working on having minimum stocks. Low inventory will result in higher prices. There is also no clarity on products such as monitors along with multifunction printers and printer cartridges as they are in 28 per cent slab. “Partners dealing in these product lines may suffer because of the cost,” says Sanjeev Pathare, Owner of Pune-based Computer Shoppe.
Endorsing similar views, Rajkumar Jain, Owner of Indore-based Business Automation, said, “We will have clear understanding and clarity only after a few months of experience with GST taxation. But, presumably, as we look at it now, the IT business will face much more stringent competition, thinner margins, customers’ restricting themselves to minimize the IT spend, absence of huge business funnels are few of the changes the industry may witness for at least one year after GST coming into force.”
Stock Clearance A Major Challenge...
Stock clearance is a major challenge partners are facing currently and they are running out of time to get rid of the old inventory before the rollout of GST. This has increased the pressure on the resellers and SIs to clear their stock and many channel partners are expected to miss the deadline due to shortage of time.
“Clearing inventory is the major challenge everyone is facing. Those having cleared their stock and buying under GST will have 12 per cent unfair advantage against those who are still carrying stocks. Partners are also not ready for reporting and the number of reports we have to file. Itemised filing online is going to be a major challenge for places where internet is slow and supply of electricity unreliable,” says Kshitij Kotak, Chief Innovation Officer, Fortune Grecells.
|K. R. Chaube
Director, Techlink Infoware
CEO, Xpress Computers
“Being a channel partner, we have to clear all our old stocks and try to keep our tax liability clear for the current tax regime. As from 1st July, 2017 onwards, billing has to be done as per GST. We have to keep a close track on each and every transaction so that we do not have a tax refund to claim or any other compliance issues,” adds Amarnath Shetty, Managing Director, LDS Infotech.
Channel perplexed between Tally and GSPs...
The Goods and Services Tax Network (GSTN), which is building the technological infrastructure for the implementation of the GST, has finalized companies as the GST Suvidha Providers (GSPs), to facilitate seamless and hassle-free transition. GSPs are expected to help businesses with complex internal processes to comply with the GST regime. While partners are contemplating to get acquainted with the new tax, many of them are not very keen to associate with GSP and will rather prefer to stick to their legacy software or own ERP software.
“As far as systems are concerned, we use Tally and we trust that it will take care of systems. We have toyed with Tally as a GSP, we are a largest Tally Cloud provider in India. As far as the change in the business environment is concerned, not much has changed for us. As we are more of a service company, we are charging service tax and now we will charge GST,” opines Limesh Parekh, CEO, Enjay IT Solutions.
Owner, Computer Shoppe
Owner, Business Automation
|B. Ananda Rao
CEO, Par Data Systems
B. Ananda Rao, CEO of Bengaluru-based Par Data Systems, says, “In the evolving environment of the new GST regime, it is envisioned that the GSP concept is going to play a very important and strategic role, but at present we are not sure about it. We might look for this option once the GST comes into force.”
Mumbai-based solution provider Techlink Infoware has developed its own software product TRADEANNEX Trading ERP Software which seamlessly interacts with third-party applications of the GST Suvidha Provider in turn with the GST system. The company intends to roll out the software solution internally and with the installed customer base within the time of the proposed changes over the regime. Techlink is also closely associated with some GST Suvidha Providers.
“Our ERP software has pan-India installed customer base in various business verticals. It has the capability to build an application at par with the GST Suvidha Provider. The compliance outputs forms and transactional information in the proposed GST regime are in the testing mode. It is ready with the basic framework of third-party application like GSP,” says K. R. Chaube, Director, Techlink Infoware.
SDs get rid of Double Taxation...
While the majority of channel partners have welcomed the GST, many feel that end-users will gain from the new tax regime and it will hardly benefit the IT industry. However, the GST has brought a major relief to the software developed by solving the decades old issue of double taxation on software. There are many disputes in the present regime due to the classification of software. The State Governments hold the view that software are goods, hence demand VAT, while the Central Government claims that software is a service, hence demands service tax. As a result of this difference in approach, the IT industry has been suffering double taxation since 2008 and has ended up paying both the taxes in most situations.
At present, software developers are paying 15 per cent (ST) plus 6 per cent (VAT / CST) +5.5 per cent (Octroi / LBT) = 26.50 per cent tax, which increases the price of software products. With GST, the dispute would go as the single tax of 18 per cent comes into force, which will help to reduce the price which is a positive indication of IT business. Most importantly, partners will not have any barrier of boundary and can offer their products and services to any part of the country.
Partners proactive to adapt Changes...
GST is quite different from the existing indirect taxation system in the country. For effective implementation, partners need to learn, unlearn, and relearn the GST, not only in theory but also in practice. More importantly, they need to change their mindset, approach and attitude towards business and taxpaying mechanism.
Channel partners are very proactive in understanding the new tax regime. “We got registered with GST which is the very first step to be taken, implementing new software which helps us in timely compliance, redesigning the invoice and other stationery format in line with requirement of GST. We are also attending various seminars and training programmes on effective implementation of the GST in our organization,” says B. Ananda Rao, CEO, Par Data Systems.
Partners are making all-out efforts for smooth transition into a new tax regime. However, there is still much ambiguity around the implementation route that partners will follow. Lack of automation and proper HR policies are major challenges in the GST implementation such as lacking proper software infrastructure and trained workforce. To facilitate the hassle-free GST compliance, partners have also started with training and enablement of workforce and modifying backend software accounting software for GST.
“GST implementation will mean a huge learning curve for millions for people across the country. Obviously, the online GST regime will have its own teething problems. The main problems will include training of the entire workforce, modifying backend software for GST and accounting software and procedures in practical life. We are gearing up for GST by enabling our backend software systems to integrate GST, train pre-sales staff on product costs after GST kicks in, train accounts, purchase and store staff on managing GST records, tax compliance and backend related online work,” says Chetan Shah, CEO, Xpress Computers.
Similarly, Pune-based e-Zest is enabling its accounting team to understand the complex components in the filing of the new tax regime. “Most of our customers have already requested our GST details via extranet supplier portal or document. Our accounts team has gone through multiple training programs to understand the GST and complexities associated with it. We are also requesting vendors to share their GST programs,” says Devendra Deshmukh, CEO, Pune-based software solutions company e-Zest.
While channel partners have already started taking steps to comply with the new tax structure, some of them preferred wait-and-watch policy to evaluate both its short-term and long-term impact on their business. Though the preparedness of the partners is in their various stages and many of them are trying hard to catch up with the deadline, they are optimistic about the major reforms by the government in the taxation and hope for “Acche Din” for the IT industry in the near future.