The stress on documentation and process is far too high. Not only are corporates expected to manage this new process along with documentation, they are also indirectly responsible to have their vendor eco system ready with this. The hit otherwise is on working capital in the form of denied credit. Businesses need working capital to manage their daily operations. And if this is diverted to managing indirect tax payment it is a very heavy stretch.
Let’s take a look at the compliance process as calendar tasks:
- By 10th of next month upload all supply invoices and verify
- Between 10th and 15th verify all your purchases and ensure vendors are compliant (for your business benefit) – corporates cannot view the vendor invoices as soon as they are uploaded (allowed only after Vendor finalizes his supplies)
- By 18th finalize the ISD and TDS return
- Pay GST taxes after finalizing the Input Tax credit (ITC)
- By 20th verify and confirm monthly return
- And of course the next month’s supply invoices upload happen in parallel
If I take up point 2 for elaboration industry wise:
Automotive: A fair expectation is large auto companies will handle about 500 vendors. If I approximate a total vendor invoice inflow of 5000 per month, and each invoice with 10 line items, with input tax credit to be taken at a line item, it means scrutiny of about 50000 lines.
FMCG: Will deal with a similar or higher number of vendors – expectation is 500~800 vendors, and if we extrapolate the details from as-is from the automotive sector, it is scrutiny of 50,000 to 80,000 lines for input tax credit.
Let us take a look at the vendor eco system. They will face change management challenges in terms of new processes – regular upload of their supply invoices, accuracy of uploads should they be manually keying in data via the GSTN portal, and on time. Notes from GSTN reveal all GST tax payees will be further challenged as they will be rated on the basis of timeliness of submission of returns and accuracy of data.
If they are inaccurate with uploads, it is a herculean task for buyers (corporates) to reconcile the differences across a large volume of vendors. Informal conversations with the Auto and FMCG players indicate corrections of between 10~15% of invoices will be required.
The reconciliation time frame is between 10th and 15th of the next month. Interesting times ahead as processes to comply seem to get more tedious.
A fair solution can be allowing corporates to be able to see their supply invoice details on GSTN as soon as the vendors upload them rather than wait for the finalization of GSTR1. This will result in a larger window of time to reconcile differences.