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Software to aid VAT compliance

Tax system brings many procedural complexities

VALUE ADDED tax (VAT) has now been implemented in Tamil Nadu as well, amidst some apprehensions. This leaves out only Pondicherry and Uttar Pradesh. The system of VAT still eludes many traders in the State.

The basic issue to be addressed relates to making people understand how VAT works and what impact it has on the nation in general and traders and businessmen in particular.

The VAT system brings with it a number of benefits. To begin with, there is transparency with regard to the incidence of tax payable on any commodity.

The system VAT encourages voluntary compliance and thereby simplifies assessment procedures. In addition, it eliminates disputes relating to the tax liability of a transaction or the rate of tax applicable. The system has fewer tax rates and concessions on different goods. It eliminates allied levies such as resale tax, turnover tax, cess, additional tax and surcharge.

It addresses the problem of under-valuation and inflation, as all stages of production and distribution are subject to tax.

The greatest advantage is the facility of claiming input credit on all VAT (input tax) paid, at the time of purchase, against all VAT (output tax) collected at the time of sale.

On the flip side, the regime raises a number of issues. In order to claim input credit, a trader has to maintain his books of accounts as prescribed under the State VAT laws. Detailed understanding of requirements, interpretation of the VAT legislation and compliance with the processes will take some time to stabilise.

Record keeping and classification of goods have become more complex. Every purchase made must be recorded.

Record-keeping

In the sales tax regime, all one needed to do was to maintain up-to-date sales registers and sales invoices, while purchase registers were not critical.

Under VAT, the trade is required to maintain up-to-date purchase registers and sales registers, in order to calculate input credit. The revenue neutral rate will be slightly higher than the rate in a VAT-less system.

VAT is charged at the normal rate throughout the sales cycle. This includes the resale segment as well which in a VAT-less scenario is either not taxed or taxed at a lower rate.

The initial uncertainty of laws and procedures causes chaos and increases red tape and costs. This is however a temporary situation. Each State has its own unique format for VAT reporting which makes it even more complicated.

A better option

All these make manual computation a cumbersome and time-consuming procedure. Relying on software that addresses these issues will be a far better option.

The software must necessarily address State-specific formats and be easy to set up and use. It must have an in-built mechanism for capturing rates of taxes, so that purchase and sales entries lead to automatic calculation of VAT for a commodity.

The system must also ensure continuous monitoring and updating of legal changes. There needs to be software that supports generation of VAT annexure reports based on the commodity's HSN code. A package that can take care of the entire process up to the printing of reports and the VAT return, with minimum user intervention, is the need of the hour.

The software package should provide for customisation in a short lead time. Accuracy is a big issue that software can address. One needs to bear in mind how fast an accounting software provider can gear up to cater to changing needs.

Readiness of IT packages involves modifying and configuring systems to meet various State VAT Act compliances as well as optimising new business processes in the post VAT regime.

When the Government sets out rules and regulations, the public accepts them as a necessary evil, although the initial reaction is one of reluctance and resistance to change.

In a normal cycle, the tax assessee seeks the help of professionals like Chartered Accountants to prepare the records and more importantly file statutory returns for them. While the professional's help may be taken in the verification process and advice to ensure that the returns are correctly filed, they need not be overloaded with mundane preparatory work.

With the advent of software, the professionals can better utilise their skills in providing value added advisory services to their clients. Users are generally not functional experts; software is menu-driven and does not require users to know minute details.

Also, the assessee is aware at every stage of the amount he owes the Government. By nature, people tend to postpone tax commitments till the very end. The software addresses this problem by computing tax amounts and keeping them uptodate for filing returns.

VAT is here to stay and traders have to comply with it. What is needed is a system that simplifies the process and takes care of traders' accounting needs so that they are not required to understand every little detail and manually track every change in legislation.

This is where automation comes to play and whether traders are tech-savvy or not, they need software.

The key is to identify a software package that is simple, easy to implement and well supported.

ANIL JOGANI

Chartered Accountant and President, Corporate Services, Tally Solutions

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