The Goods and Services Tax (GST), likely to be implemented from 1 April 2017 and is expected to bring major changes in the Indian taxation system, by replacing multiple existing taxes such as Excise, Value Added Tax (VAT), Central Sales Tax (CST), Service tax, Octroi duty, etc. into a single taxation system.
Goods such as alcohol and tobacco products still do not fall under the purview of the proposed GST regime.
A dual GST structure has been proposed wherein a combination of a Central GST (CGST) and State GST (SGST) might be levied separately (IGST on interstate transactions). The manufacturer, trader or service provider is required to keep a track of each of these tax credits and liabilities at the state level for submitting their monthly returns.
Potential impact of GST on Enterprise Resource Planning (ERP) systems
GST could have a multifold impact on ERP systems, which has been highlighted below:
Adaptability of the ERP system: The ERP system needs to be checked for the appropriate version and an upgrade might be needed to make the system GST compliant.
Business process refinement:
All the tax-related inward and outward processes will be required to be reviewed and aligned, as applicable, to GST requirements. Business processes such as interstate stock transfers, subcontracting, etc. might be required to be closely evaluated, since in the proposed GST framework, taxes are also levied on such transfers. In addition to this, the process for tax utilization at the end of the month might also have to be setup as per the new policies.
Tax configuration and computation:
It is likely that tax calculation procedures would require a major change to accommodate the proposed taxation requirements. Appropriate considerations may have to be taken into account to fulfill the requirements of monthly tax returns. While making the configuration changes, due consideration should be given, such that the system is not only GST ready, but is also scalable and adaptable to future changes in the Indian financial environment.
A unique sequential numbering for outgoing GST invoices may be specified, which need to be configured as per the directives of the tax authorities.
Master data amendments:
Various master data such as the chart of account, material master, vendor master, customer masters, price masters, etc. may need to be updated as per the new requirements. In this context, vendor and customer GST registration numbers will become mandatory for availing or passing the credits and reporting purpose.
Reporting and printing requirements:
Appropriate reports are expected to be developed based on the regulatory requirements. The necessary changes may also be required in existing forms such as contracts, purchase orders, quotations, invoices, etc.
Impact on interfaces:
The impact on any interfaces with third party tools, if any, should be analyzed on a case-to-case basis.
Tax credit migration:
Tax credits from existing deductible taxes such as excise, service tax, VAT, etc. might need to be updated or distributed to the appropriate account as per the directives of the new regime.
Closure or reversal of partially open transactions:
Partially-open transactions such as goods received but an invoice has not been booked, or goods issued for sale but not received by the customer, etc. need to be closed or reversed and migrated to the new system.
Migration of open transactions:
Open transactions, including contracts, purchase orders and sales orders, may have to be migrated.
Managing exceptional transactional requirements:
Managing the transactional requirements in scenarios such as the return of goods sold or purchased before GST and returned after GST implementation, stock in transit during the cutover activities, etc will be important.
Significant changes are expected to take place in ERP systems on account of implementation of GST. These changes may be visible in areas related to master data, business process changes, interfaces and reporting requirements for GST migration. Companies need to adopt a proactive approach in understanding the potential impact of GST on their ERP systems before the GST Bill becomes a law. Post finalization, there could be multiple changes to the supply chain, which again could have a cascading impact on the underlying ERP. Companies are thus recommended to be well-prepared, before GST comes into effect.