Recent regulatory changes have helped fuel demand for accounting services.
Since 2014, the Indian government has initiated reforms to push the country towards a cashless and cleaner economy. The best-known of these are demonetisation, under which the 500-rupee and 1,000-rupee currency notes in circulation were declared invalid legal tender in November 2016, and the goods and services tax (GST), rolled out in July, which brings indirect taxes at the state and central levels under one umbrella.
As of May, demonetisation had brought 9.1 million new assessees into the tax system as people realised that it was no longer viable to hide cash and income from the authorities.
The GST requires all businesses with a turnover above 2 million rupees, or about $31,000, to register themselves and digitise their transactions. (The threshold is 1 million rupees for northeastern states.) According to V.S. Krishnan, national leader of the Tax and Economy Policy Group at EY India, the GST implemented in India is a dual value-added tax in which both the central and state governments concurrently tax the entire value chain, with the state taxing value addition in manufacturing and services and the central government taxing value addition in trading.
“This facilitates the creation of a transparent invoice trail of transactions, which makes accounting simple and transparent. This, combined with the proposed invoice matching in the GST portal, will considerably reduce noncompliance,” Krishnan explained.
The GST portal is the front end of the new IT system created by the Goods and Services Tax Network (GSTN) to allow the central government and the states to administer the new tax regime. It provides an interface for businesses to register themselves for assessment, record their transactions, and file their returns. The system matches invoices raised against transactions by buyers and suppliers along the value chain, thus preventing false claims for tax credits. Registrations on the GST portal reached 9 million within a month of the rollout, and the Indian government expects them to hit 10 million, including old and new assessees, for the fiscal year ending March 2018. The end of July 2017 had already seen 1.2 million new registrations, and the GSTN expects 400,000 new registrations to come on board every year.
As these reforms push Indians towards greater transparency in their dealings, public accountants in the country are finding themselves in the role of trusted advisers much more than before. “Our advice is treated with greater respect,” said M. Devaraja Reddy, principal partner at Hyderabad accounting firm Deva & Co. “There is an increasing level of financial discipline and awareness among individuals and businesses. They want to do things the right way and take the advice of their chartered accountant very seriously. It is not just a signature to go before the regulators.”
A sea of opportunity
The GST reform not only subsumes various indirect taxes at the state and central levels into a single, IT-supported tax structure, but it also makes these taxes destination-based rather than origin-based. This has led to businesses’ remodelling their supply chains to take advantage of the new tax structure.
These overarching changes on multiple fronts mean that businesses are looking for far more from their tax consultants than before. KPMG, for instance, started on its GST journey more than two years ago. The firm consulted colleagues from nations with GST such as Canada, Australia, and Malaysia and recruited and trained 1,100 people towards building a multidisciplinary team that not only offered tax expertise, but could also help clients revamp IT systems and make over supply chains in accordance with the new regime.
“This is a challenging, exciting time to be in accounting in India,” said Santosh Dalvi, partner for Indirect Tax at KPMG India. “The way we do business is changing. It is not just tax advisory anymore. It is a combination of people, processes, and technology.”
After the launch, KPMG transitioned clients into the new GST regime via three phases: impact assessment, validations of the assessment against the actual laws, and, finally, actual implementation. While most large corporations adopted this step-by-step approach, a few waited till the last possible minute. These businesses leaned heavily on large accounting firms such as the Big Four during the transition, but they also looked to midtier accounting firms for help.
Add to this a slew of eleventh-hour requests from clients in the midmarket segment, and midtier accounting firms, even those that invested in manpower and technology to prepare for the rollout, found themselves completely stretched. BDO India, for instance, hired around 80 people with various skills in May and plans to continue to add staff every month through the end of the year. The firm also developed technology-based, intelligent, scalable solutions to help clients transition into the GST administration.
“About 95% of businesses in the 500 million–5 billion rupees bracket were sitting on the fence, sceptical that a change of this magnitude would happen. They hoped they would be given longer to come on board, or that they could implement GST in-house,” explained Shrikant Kamat, partner for Indirect Tax at BDO India. “When the rollout finally happened, they found the challenges far too many, and were also bogged down with day-to-day work.”
Smaller accounting firms and sole proprietorships have also been hands-on in helping their clients transition into the GST regime. “We can be proactive in educating [clients] about the new law, help them do an impact assessment, restructure their contracts, configure their accounting system, and develop an IT backbone to adapt to the new tax structure,” said K. Raghu, senior partner at Bangalore firm K. Raghu & Co. and a board member of the International Federation of Accountants.
The GST also led to the advent of new openings in the Indian business world. As large and medium businesses set about creating cross-functional teams for what is emerging as a dedicated GST function, about 1.3 million jobs are expected to come on the market. For small businesses however, the picture is slightly different. They may use ledgers or other low-tech recordkeeping methods and may not have full-time, well-trained finance staff. Here, accounting firms may be asked to serve as an external provider to whom the finance function is outsourced, Raghu said.
While this is a boom time for the accounting profession in India, firms are cautious in their outlook for the future. “We are hopeful there will be growth, as it will mostly be compliance-related work in the future. It depends on how the market and the GST structure evolve,” Dalvi said.
According to Raghu, the profession will have to balance GST teething challenges along with guiding larger clients through the Ind AS initiative, which aims to converge Indian accounting with IFRS accounting standards. At the same time, accountants in the country also need to stay abreast of global technology-driven skills such as data analytics and cybersecurity.