Ashwini Kumar Rath

Two Years of GST - Align Business Process with Taxation

Sep 28, 2019

Two years have passed since the implementation of GST in India. It was a promise of tax reform pending through almost a decade. When it finally saw the light, the tax framework, the information system to manage the consequential processes or the population affected by the change in the tax regime, was not ready. However, things have gone far along the line with each one inching a bit to make the effort a success - truly an Indian jugaad.

One of the major objectives of GST is to achieve transparency in corporate tax management - in collection and validation. It has also been accepted that such an objective cannot be achieved without the intervention of digital technologies. Experience tells the story: the extent of the benefit of the digital intervention is dependent on the least common adoption of technology along the supply chain that drives the transactions. The same should also be true for GST implementation.

As we see the GST implementation at the interface of government and business, it is pretty basic though the system works well and is certainly an improvement over multitude interfaces in different ways with the previous tax regimes. The system is yet to automate the transactions seamlessly from business domain to system of tax governance. When I refer to tax governance, I refer to a set of activities like storage, identification, validation, reconciliation and intelligence of financial transaction.

While we expect the government to try hard to bring a digital change to the tax governance, it is wise for the business and bank to start automating the financial transaction and record compliance across their own systems. Looking at the current state of the tax governance system, only financial spreadsheets may be readied at the company ERP/CRM while automation of financial transactions with banks and other associated financial institutions may be strived for. In fact, this is one of the ingredients of the digital transformation at the enterprises while GOI (Government of India) may quickly move ahead as part of the Digital India project.

Startups First

When speaking about GST for startups, government undoes its priority, boosting startup ecosystem across the country to spur growth during this slow period of the Indian economy. Government waives off GST compliance as a populist measure instead of pushing it to the micro and small enterprises.

As per a NASSCOM's report in 2018, the size of India's startup community is growing very fast. This alone indicates the importance of digital intervention in business processes of these startups and such a phenomenon will usher a strong and vibrant business ecosystem. The life of the majority number of startups is not long; the lean process will be less burdening, and thus, may let some survive.

Facing PO/PI Problem

A simple sales process involves getting a purchase order created along with an invoice. Later the payment against the invoice forms the basis of financial account reconciliation. This process can be very complex with the request for transactions, payments in chunks and with multi-level workflows across a long supply chain. This entails requirement of standards, maintenance of financial sanity and interoperable data exchange between information systems of organisations engaged in such a process.

The basis of all financial transactions lies in two documents (or data records) - Purchase Order (PO) and Pro-forma Invoice (PI). These two documents drive the financial transactions and the consequent reconciliation forms what we call business transactions. The problem of every
business happens to manage them efficiently while incurring the least burden. The problem of every government entails tracking the discrepancies and collecting taxes appropriately. This is what I call a PO/PI problem. This results in an enormous difficulty in the ecosystem from achieving efficiency and transparency. The next in the line is a series of restrictive regulations from the government and reduced business activities due to a constant suspicion between government and business.

The above situation can be eased by the automation of PO/PI interfaces - adopting digital transactions across the ecosystem: business units, financial institutions and government. While the most important aspect of any financial transaction lies in its integrity, the speed of doing business depends on how quick we complete transactional formalities - this is the push for automation.

A system with full-fledged APIs for integrating information systems of banks and businesses is a requirement; otherwise, all is half-done. Also, there needs to be a set of guidelines for the compliance of the software from bank and business interfacing with the tax governance system. The government should come up with standardisation of financial data exchange - protocols and data format, actively consider adopting Blockchain technology for financial records if we have to achieve the goal of competitive advantages of doing business in India and financial transparency in the next couple of years.

Give your feedback
Get latest news, stories and videos