GST and IT Implementation Challenges
GST is a single tax on the supply of goods and services right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain with set off benefits at all the previous stage.
Taxes to be subsumed into GST
• Central excise duty
• Service tax
• Additional customs duty/ countervailing duty
• Octroi and entry tax
• Purchase tax
• Luxury tax
• Entertainment tax
• Taxes on lottery, betting, and lottery
GST will reduce the overall tax burden by reducing the impact of cascading taxes and allow the cross utilization of tax credits across the supply chain.
For the implementation of GST in the country the central and state government have jointly registered goods and service tax network (GSTN) as a not-for-profit, on- government Company to provide shared IT infrastructure and services to central and state governments tax payers and other stake holders. The key objective of GSTN is to provide a standard and uniform interface to the taxpayers and shared infrastructure and services to Central/State Government
GST Portal providing front ended services of registration, Returns and payments to all taxpayers, as well as back-end IT module for certain state that includes processing of returns registration, audits assessment appeals etc. all states accounting authorities RBI and banks are also preparing their IT Infrastructure for the administration of GST. All mismatched returns would be auto generated and there would be no need for manual intervention most returns would be self-assessed.
IT teams will be wondering what they will need to be doing from a planning and implementation stage to update and review ERP system to be ready for the GST. Now, these changes could be as simple as updating the version but in most cases, it is not so simple. A change in an ERP requires a coordinated effort between tax IT and other departments to ensure success. The ongoing challenge with the GST has been a situation where the implementation date and requirement keep shifting. Over the last several months' many projects have started to upgrade, fix and design new function and processes in ERP to prepare for the change.
GST will require businesses to revisit the following areas in Their ERP Module:
• Sales and Distribution
• Financial management
Each of these modules is impacted with the change to GST.
One of the challenges with GST will be a widening of the taxable basis because of the provision of almost any type of goods or services being taxable now. GST Transition the taxable event from sales distribution manufacture and provision to simply the event of a supply.
Any change in rates is still a major ERP event because you have to create new tax codes conditions and update information about products and materials.
Businesses which used to only be involved in the provision of certain types of supplies will make sure all their ERP processes are considering tax. It is important to spend time reviewing your existing processes or business flow to understand where tax consequences could change. This change has impacts on how orders are taken goods are received materials and reporting for internal purpose and compliance reporting.
For tax compliance, ERP should produce data which can be used to create the appropriate entries into the GSTN for outward and inward transaction and make sure valid tax invoices can be created.ERP needs to capture the relevant data or can fill in missing data as the process run through before the compliance begins. If a business attempts to create the data at the time of compliance this can lead to delays and mismatches with invoices which are already created.
Tax team will need to take responsibility to understand which business process will remain the same, which can be optimized under the GST and which will no longer be relevant. These findings will need to be consolidated and presented across the organization. Then it will fall to a combination of Tax and IT to develop the implementation and testing plan, implement it and then test to ensure it is working.
All components of the ERP require maintenance and so as the GST stabilizes there will be an increased strain on tax and IT teams to continuously update test and revisit scenarios as the business processes evolve after the GST.any ERP migration strategy should include an increasing amount of time for maintenance and re-evaluation until at least 24 months after operation of the GST.
An alternative to this seemingly endless cycle of ERP design build and test is a solution which centralizes the tax information in a central place. The advantage to a tax information system is it allows the tax system to provide the tax specific values pack to the ERP. The ERP maintenance focuses on items ERPs excel at such as accounting workflow and processing management while the tax system takes over for the computation and compliance .when coupled to a billing system the tax system can provide a solution for all the tax sensitive data which is separate from the ERP. Therefore, mission critical ERP tasks are not interrupted with governance, risk and compliance changes.