CMA ANIL SHARMA

Goods and Service tax (GST) is one step towards major reforms in Indirect Tax structure in the country. It has a deep impact on all business houses and their strategies.  As GST is a destination based tax structure, it will also change the revenue pattern of state and central governments.  By amending the constitution of India through 122nd amendment all state governments have been empowered to tax services and Central government has been empowered to charge tax on goods. A regulatory body called GST Council, having representation from all states and Central government, shall address the issues related with GST on the national level and play a role in recommending body to Central government for final decision.

With the introduction of GST, the method of calculation of indirect tax on goods and services will change and indirect tax shall be calculated on same amount or price. It will nullify the cascading effect of taxes. So there will be no payment of VAT on Excise duty. With this change of method, the cost of products and services will reduce. Under GST, Input Tax Credit (ITC) will be available on all type of input supplies i.e within and intra states; it will further reduce the cost of the products and services. The introduction of single returns formats for State and Central governments with same calendar period and having all transactions online through the internet will ease out the business process. GST will also ensure free movement of goods throughout the country by eliminating check posts and octroi barriers. It will reduce the travel time of the vehicles and goods will be delivered fast. By one estimate, it will reduce the logistic cost by 20% approximately. With the free movement of goods and uniform tax structure across the country, branch offices or dumps of the companies may also be eliminated or will be reduced. It will reduce the marketing overheads further. In the total process, the consumer will be benefited as the cost of the goods and services will go down. By having one to one correlation with all transactions, leakage of revenue will be plucked and it will strengthen the economy.

The total process of GST further ensures the greater transparency in the whole system. All stakeholders will be on the line for each and every transaction right from registration and linked with Adharcard, Banks Account Number along with MICR Code, IFSC Code, PAN number, Import Export Code (IEC), Companies Identification Number (CIN) etc etc. Further, the details of all professionals dealing with departments on behalf of their clients will also be made available and will be linked with their client details. All dealers having any type of transaction will also be online through their GSTIN, TDS, and TCS numbers and transactions will be linked accordingly.

We know that indirect tax i.e GST is one of the element of total cost of a product or service and transparency in indirect tax only does not solve the purpose. We must have transparency in total supply chain management. Like in GST, we also need transparency and accountability in all steps prior to GST. We need transparency and accountability right from raw material produce to the consumption of final product at the consumer end.

GST has the direct link with the cost of the goods and services and will be calculated at Cost plus profit amount of a manufacturer. GST process talks about the overall benefit to the consumer. But it will be a challenge for the governments to ensure that GST benefit must reach to the consumers. Under GST though the government has introduced various checks to verify the facts but still without having transparency under the whole system it will not be possible. GST council through online transactions can ensure one to one correlation of the transactions but will not be confident about the methodology of the prices calculated for goods and services. GST is going to impact the total cost of goods and services through various mechanisms and the consumer will be benefited, but without having transparency in costing mechanism, how one can ensure that benefits of the GST have been passed on to the consumer.

To ensure real term benefit to the consumer, it is necessary to have formal cost accounting mechanism in all type of business formats and the government should introduce costing records and audit in the way GST AND demonetization has been done in this country. Cost Accounting mechanism gives you the breakup of each and every element of cost and also tells about its methodology. Every economic activity has its social cost. So all business houses must have their costing mechanism in a transparent manner and it must be available to the government for verification through Cost Audit. Valuation of stock or inventory is one of the grey areas in any business format and with the help of Costing records inventory valuation will be more transparent. Through formal costing mechanism, it will be easier to work out the costing of a product or services and the impact of GST on it.

In GST Model LAW 2016, the government has put a big responsibility on the shoulders of CMAs and has asked them to verify various transactions of business houses through audit, inspection, verification and certification. CMAs are also entitled to appear in Tribunal in the matters related with the interpretation of law. It will help the government to ensure proper compliance of GST provisions and plucking of un- plucked areas. But unless we have Cost accounting in all transactions of value addition or chain supply, the ultimate aim of the benefit of cost reduction to the consumer will not be possible. Indirect taxation or GST is one of the elements of total cost. We need other elements of cost like raw material utilisation, labour deployment in industry, Utility cost, Administrative and marketing overheads etc.  to be addressed in the same fashion by introducing costing reforms in all economic activities. Maintenance of Cost records and audit thereof is the first step in this direction and it may derive better result than GST outcomes.

In India, Cost records and Audit is applicable to selective industries through Companies Act 2013 but it is not sufficient to ensure real term benefits of GST to the consumer. It has to be introduced in all business formats in totality. In GST greater transparency is worked out, similarly, there is a need to introduce transparency in costing process. Our resources are limited and need optimum utilisation. Through Costing we will understand the utilisation of resources in the better way. Time of gross level accounting has gone and now it’s a time of micro accounting. Formal Costing in all business formats is the only solution.

India has basic infrastructure, research work and knowledge needed for costing in industry. To implement GST in true spirit and to make the success of ‘’make in India’’ government must think to introduce Costing records and Audit in all business formats by amending all related laws. On one side it will help the industry to take the edge over world market and on the other side will generate employment in real terms. In the present scenario, the country needs minimum 50000 Cost Accountants (CMAs) to achieve the goals under GST. Let’s join hand to make India GOLDEN SPARROW again.

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Category : Income Tax (25515)
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Tags : goods and services tax (3884) GST (3476) GST Council (74)

12 responses to “Through Cost Accounting, Economy can do better in GST”

  1. karan says:

    i am cma student but it hurts when people say CA is far better

  2. sanchay says:

    Dear CMA Anil Sharma, Cost Record should be maintain asper Companis Act, 2013.. Taxations are different things.Partnership Business do not require to maintain cost record. Thanks. CMA SANCHAY KUMAR ROY REACH AT roysanchay@gmail.com

  3. sanchay says:

    Cost Accountant are great role in GST Frame Work.

  4. sanchay says:

    Cost and Management Accountant CMA are great role in GST Frame Work.

  5. CMA ANIL SHARMA says:

    Thanks to all who went through the contents of my article and gave their view point. I only tried to make the policy maker to review the provisions of the law and give cost accounting its role to play in the economy for the benefit of all stake holders.

  6. Tax.Adv.BSKRao says:

    PRAYER BEFORE THE GST COUNCIL

    About 90% of compliance under Value Added Tax Act is coming from Non-CA Tax Professionals of India. To confirm this fact, I request before GST Council to collect the Assessment records under Value Added Tax Act of all State Govt. for any particular month in the year 2016 to know who are all appearing before the assessing authorities under VAT. Therefore, it prayed before GST Council to include all five class of Tax Professionals for the purpose of Audit U/s 53(4) of Model GST law as under:-

    “Section 53(4): Every registered taxable person whose turnover during a financial year exceeds the prescribed limit, shall get the relevant documents and evidence in support of return filed be audited by an Advocate or Chartered Accountant, Cost & Management Accountant, Company Secretaries or GST Practitioners and shall submit to the proper officer a copy of the said report in the form and manner as may be prescribed in this behalf.”

    LEGAL GROUNDS FOR THE ABOVE CLAIM

    1. Audit means verification, depending on the purpose they are classified as Energy Audit, Environment Audit, Product Audit, Process Audit, Legal Audit in USA & Tax Audit in Indian Income-Tax Act. Here the point is, person conducting audit should be specialized in that subject of Audit.

    2. Audit is not the domain of any professionals like practice of law, depending on the purpose of Audit, Govt. should decide who has to conduct Audit. Assessing officers of the revenue Deptt. who conduct genuine Audit in the course of scrutiny proceedings are not Chartered Accountants/Cost & Management Accountants.

    3. The “Tax Audit Report” is nothing but legal opinion about reporting of section wise wrong claims/classification or omissions/concealment or any violations of provisions of taxation law made in the return filed on “verification/audit” of records maintained by the assessee in support of the return filed. Very purpose of Tax Audit provision is to facilitate the administration of tax law to avoid verification of each tax payer to find out legitimate tax has been remitted to the Govt. exchequer. To be precise, very purpose of Tax Audit Report is to enable the assessing authority to conclude quality assessments.

  7. CMA Sengeny says:

    Very useful and informative column and great article sir. Need more like this from you sir.

  8. Tax.Adv.BSKRAO says:

    World over functions of Accounting are classified depending on the area of operation, application and usage. They are as under:-

    Cost Accounts – Manufacturing/Processing Activity
    Financial Accounts -Trading Activity
    Management Accounts – Management level for taking Business Decisions

    Management Accounts is nothing but application of Ratio Analysis and Cash Flow Statement on Cost and Financial Accounts.

    By The Cost and Works Accountants (Amendment) Act, 2011, name has been changed to “The Institute of Cost Accountants of India” and the members got the power to work in the area of Management Accounts also and can re-designate themselves as ACMA/FCMA. Now, it is funny that both institutes passed by an Act of Parliament called by similar short name of “ICAI”. “ICMAI” should have been the correct name of old ICWAI. I do not know on whose mischief it’s so happened.

    In view of the above amendment, Cost Accountants now possess wide power of working in the area of Cost Accounts, Financial Accounts & Management Accounts. Whereas, Chartered Accountants are restricted to work in the area of Financial Accounts only (Ie, Accounting of Trading Activity Only). Hence, ICAI (Cost & Management) should be called as the only FULL ACCOUNTING BODY in INDIA.

  9. pradeep says:

    Sir,
    I agree with your views that cost accounting n audit can be very useful tool for GST implementation, yet the major problem is that all non corporate business entities are not required to keep books of a/c and their tax audit is only an eye wash. hence if ICDS are replaced by Ind AS in Income Tax, it will be a positive step forward and can be taken easily. all CA, CMA & CS should join hands for general accounting reforms first to pave way for cost accounting based reports

  10. CMA SUMIT SHARMA says:

    Thanks for better explanation about CMA need in industry

  11. CMA Krishna N.Chaubey says:

    Good Article.

    It is self explanatory that how Cost Accountant can do better in GST in economic point of view.

  12. CMA Rakesh Kumar says:

    Thank you sir for updating our knowledge.

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