It has been quite a challenge for businesses to switch over to the GST system initially. Those players that had an effective action plan for their ERPs to migrate into the GST regime were the winners of this makeover. Data migration is a daunting task that impacts the master data and the transaction data alike and needs the deployment of adept resources. For this reason, it is essential to evaluate and recognize the areas in the ERP system which could be affected by the GST implementation.
Some of the Key Functionalities that are affected Under the GST System
Here are some of the functionalities that are affected by the implementation of GST.
- Master Data Details – The GST law puts forward rules regarding the tax charges, location of supply of goods and services, and the time of supply. The tax rates concerning the different goods and services also vary as per these rules. To deal with such scenarios, there arises a need to re-enter the master data which includes the client’s billing and shipping addresses, inventory and warehouse details, item masters, etc. In fact, this has streamlined the different tax procedures as well as the reporting process in the ERP system
- Chart of Accounts – Previously under the VAT system, the companies that sold goods and offered services at the same time needed to have separate account codes for transactions related to Value Added Tax (VAT) as well as Services Tax. Further, these account codes are combined under the GST system. It was mandatory for the taxpayers to carry forward the tax credit balance from the previous accounting codes to GST account codes in order to maintain the tax credit paid under the earlier system. Later on, the reconciliation of the same was made possible.
- Reporting and Workflows – Another key change that occurred with the implementation of the GST system was related to the reporting framework and workflows. The already existing reports formatted as per the indirect tax system under the VAT regime have become out-dated and those must be re-designed according to the GST law. The merging of the tax data with the ERP system is susceptible to failure as it acts as a single point for the entire reporting process. Hence there arises the need for the implementation of more robust workflows.
- Tax Rule Engine – A majority of the ERP systems maintain a separate tax rule engine which serves as the master repository of all the information available inside the system. This consists of details regarding tax jurisdiction, tax compliance, tax rates, and reporting. A lot of re-engineering has gone into developing this tax engine as per the GST system, and it is still undergoing up-gradation on a regular basis.
- Requirement of a Smart Reconciliation Tool for the ERP systems – At present, as the amendments are not made in the returns, but would be reflected only in the next month returns, it is essential to have a robust reconciliation tool implanted in the concerned ERP system in order to track changes so as to evade duplication in data. Further, the GST system is all about matching data between numerous returns like GSTR-2A with GSTR-3B returns, GSTR-1 with GSTR-3B returns, etc. To handle this situation, it requires a powerful tool that can offer details about the mismatch in the reports, recommend actions, and circumvent duplicate entries in the books. In fact, matching entries in books and returns is another strenuous task that the businesses have to encounter if the tasks are not automated. A comparison between GSTR-2A return and the purchase register is quite important, as it helps the taxpayer to claim 100% of the ITC (Input Tax Credit) for which he is eligible.
- Communication Tool for Vendors – The adoption of AI and Machine Learning technologies can be of great help to the larger enterprises in managing the vendor accounts easily. As the GST regime involves uploading the invoice details on to GSTN and matching GST returns between the recipients and suppliers of the supply transactions, it may include regular tracking of vendor ledger accounts using the GSTR-2A return, which is auto-generated on the GST portal. Developing an automated communication tool for vendors which is embedded within the ERP system is the need of the hour that each taxpayer might be looking forward to. This is because it guarantees the timely claiming of ITC and avoids the last minute and later disputes with the vendors regarding any mismatches.
Looking into the Future
Making your organization GST ready could be compared to the implementation or re-implementation/up-gradation of an ERP system from a lower version to a higher one. In fact, it is not that simple as affecting changes in invoice tax calculations; rather, it requires a complete review of the business processes as well as makeovers. Though it sounds complicated, it is not essentially so if the fundamental concepts are understood well.
There are major changes involved in the functioning of the businesses following the GST wave. In fact, with the introduction of GST into the system, there is the same tax structure all over India, unlike it was previously when the businesses had to consider many aspects pertaining to the different states.
It is a well-known fact that businesses flourish when there is a well-structured process in place, along with proper reporting and accounting systems. Further, IT plays an important role in running a business successfully. Following the implementation of GST, a revamping of the entire business processes has become mandatory.
Moreover, as the frequent changes in the law are becoming a tough thing for the businesses to handle and interpret, it would be necessary to conduct an impact analysis on their business processes and embed the same in their ERP systems. A major challenge is to make sure that the software is configurable and flexible to deal with such requirements so that the enterprises can implement the changes without any interruptions.
In short, making necessary changes in an ERP environment while syncing with the GST system is an intimidating task which is to be dealt with carefully to run the business smoothly.