As banks gear up to face the challenges around the new taxation regime, Arundhati Bhattacharya, Chairman of the country's largest bank, listed out the issues the industry will face before the rollout.
With the Goods and Services Tax (GST) expected to roll out in July, State Bank of India has raised the challenges of centralised registrations and handling multiple assessment reports.
As banks gear up to face the challenges around the new tax regime, Arundhati Bhattacharya, Chairman of the country's largest bank, listed out the issues the industry will face before the rollout.
Banks will require at least six to eight weeks to work around the changes including the management of multiple back-end systems, common interpretation readiness on the software front, and providing training to employees to have borderline understanding of laws to build a single stable platform.
“In respect of GST, the fact of the matter is, we are dealing in services," said Bhattacharya. "To that extent there are certain challenges. First of all, there is no centralised registration. If you look at the other jurisdictions where GST has been rolled out, services always have centralised registration. Here we will need to have 36 registrations for all the 36 states (including Union Territories)."
“For decentralised registrations, automatically the reports or the returns that have to be submitted becomes more. So the people assessing and inspecting you will become that many more,” she added, saying that the government has promised to work around one body consisting of central and state personnel.
According to Siva Subramaniam GV, Vice President and head of product management at SunTec Business Solutions, which provides solutions on banking and financial services, “Banks are already doing the registrations and customers will start driving the registrations which will converge at one enterprise level application which will help centralise the process. One is through the GST network and second would be with the bank.”
The government is working on a concept called Input Services Distribution (ISD) in which some services built centrally by vendors will be accounted centrally by banks and distributed across units using the service.
Companies such as SunTec help provide software applications to meet such integration of all systems alleviate the attributes to facilitate the new tax regime change.
Bhattacharya also pointed out that there is also costing of intra-branch transactions.
She said, “For instance, today you are paying service tax for only on the end product and not paying for the intermediary steps. There is a suggestion that the intermediary steps also have to be accounted for. If that happens then it can become a big difficulty and we are trying to find the best way to getting around it.”
The third challenge Bhattacharya cited was the lack of clarity on the exemptions in the service tax rules such as derivatives, securitisation, etc. which are allowed in the existing rules.
However, experts suggest that the costs and other challenges could be a monetary jerk and may stabilise once the entire tax base widens with more people becoming part of the tax bracket by going digital.
Last week, the government finalised four sets of rules with a draft for public comments on five other aspects released on Saturday. The state and the central bureaucracy will now sit down and fix product-and service-wise rates (called fitment in tax parlance). A decision on most aspects is expected at the next meeting scheduled in Srinagar on May 18-19.The GST Council has approved a four-slab structure of 5 percent, 12 percent, 18 percent and 28 percent with a cess on tobacco, soft drinks, pan masala, luxury vehicles and coal.