GST spells a hard road ahead for banks

With the Goods and Services Tax (GST) implementation around the corner, a question everyone wants answered is whether banks are truly ready for it. Even startups availing banking services will have to pay more tax for every transaction conducted with their bank.

Tax rates for banking services delivered will now increase from 15 percent to 18 percent, a move that is expected to make bankers’ lives harder. Now the point of contention is whether input tax credit will continue, which is given when proper records were maintained to track taxable and exempt banking services.

Banks have a problem with origin too. If they are conducting a transaction in several small towns in each state, records should be maintained on what services were delivered in each village and town. This is to track the GST to the source of the transaction.The banks need to understand that the service delivered is against the Central GST (CGST), State GST (SGST), or Integrated GST (IGST), based on the type of transaction.

The problem with compliance is going to get tougher too. Banks use a centralised registration system to show their service tax compliance, which was a single window. Under GST they will have to maintain state-wise registrations for service tax as well as spend more time maintaining records. Clearly, banks are yet to ready themselves for this.

The IT companies which provide the software to banks will have a nightmare in executing this additional application. They cannot use a cloud-based solution for all bank branches as everything is an on-premise legacy solution. Now, some wonder why cloud-based applications cannot be deployed to make GST records easy—the problem lies in integrating the legacy API with cloud-based protocols.

Now, if the bank uses the services of a PR firm, for example, it will have to maintain records of the percentage of tax based on services rendered in each state. Again, the bank should figure out if it is Central GST, State GST, or Integrated GST that has to be paid.

So by August, bank employees will be over-worked and the confusion will have to be settled by clever use of technology and the services of a whole lot of accountants.