Organizations today are driven by specialised processes which are at times unique to their business. These processes often form the core competency and key differentiator in their operations. To support and control these processes, organizations have implemented enterprise-wide business softwares or ERPs which streamline their entire workflow.
Enterprise Resource Planning or simply ERP is a process management software that allows an organization to use a system of integrated applications. ERP software is considered an enterprise application as it is designed to be used by larger businesses. It often requires dedicated teams to customize and analyze the data and to handle upgrades and deployment. Usually this is required to automate back office functions related to production, supply chain, finance, payroll and human resources. Broadly speaking, an ERP software integrates all facets of an operation;, including product planning, development, manufacturing, sales, and marketing.
Development of such complex business softwares takes years of research and the products keep on evolving to meet new industry requirements. These systems are also required to assimilate all the legal and regulatory requirements into their compliance and reporting framework.
GST is all set to subsume a major set of central and state level indirect tax levies. Consequently all the enterprise-wide business softwares will require intensive re-engineering to build new logics addressing the new tax regime.
GST will impact the ERP systems at various levels and will require major customizations for different set of transactions. This will lead to a re-defining of ‘master level’ as well as ‘transaction level’ data flows and reporting.
Below are some of the areas wherein businesses will need to revisit their ERP systems and make necessary changes for a smooth transition into the new regime.
Chart of Accounts – Earlier, organizations involved in the business of selling goods and providing services simultaneously were required to maintain separate account codes for Value Added Tax (VAT) and Services Tax related transactions. These account codes will get merged once GST goes live. Attention must be given while carrying forward the closing balance of tax credit from current account codes to the new account codes. These transitional entries will ensure complete availment of input tax credit under the new regime.
Master Data Information – Model GST law has defined new rules with respect to charge of tax, place of supply of goods and services and time of supply. The tax rates applicable on various transactions will also differ on the basis of these rules. To address such scenarios, businesses will need to revisit the master data such as a customer’s ‘Bill To’ and ‘Ship To’ addresses, warehouse information, inventory and Item Masters etc. This will streamline the tax determination and reporting in the ERP system.
Tax Rule Engine – Most of the ERPs have a separate Tax Rule Engine which is a master repository of all the logic inside the system. This includes the tax charge rates, tax jurisdiction and tax compliance and reporting. A lot of re-engineering work would be required to build this tax engine for GST from scratch.
Reporting and Workflows – Another major area of change would be the reporting framework and workflows. All the existing reports pertaining to the current indirect tax regime will become obsolete and new reports needs to be designed as per the GST Law. Consolidation of tax compliance in ERP system will also result in businesses struggling to make timely submissions, as it becomes the single point of failure for overall reporting, and hence more robust workflows needs to be planned and implemented to avoid this.
Bringing out these changes in an ERP environment is not an easy task. Organizations must address these changes for an easy transition into the new tax regime. This may also require companies to adopt such softwares or ERPs which will automate GST compliance for them.
ERP companies such as SAP and Oracle have already started development of these reports into their system. ClearTax is also working on development of a return filing platform which can be stitched into the existing ERPs for end-to-end GST compliance without any manual intervention.