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Impact of Goods and Services Tax on Enterprise Resource Planning (ERP) Systems

Updated on: Jul 6th, 2021


7 min read

Businesses did have a tough time initially transitioning into the GST system. Those businesses that planned and implemented an effective change management for their ERPs to migrate into GST were winners in the race. Major ERP player such as SAP, Oracle, Tally etc have also incorporating the GST compliance requirements within their system for existing and new customers.

Data migration is one big task which affects both master data and transaction data and requires extensive deployment of expert resources. Hence it is of utmost importance to examine and identify the impact areas of GST implementation in ERP System. Here we will discuss some of the functionalities and modules that are getting impacted under GST regime.

Is your ERP ready for GST?

Chart of Accounts – Earlier under VAT, 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 are merged under GST. Carrying forward of the balance of tax credit from earlier accounting codes to GST account codes was mandatory for the taxpayers to retain the credit of taxes paid in earlier regime. The reconciliation of the same was feasible later on.

Master Data Information – GST law defines rules with respect to the charge of tax, place of supply of goods and services and time of supply. The tax rates applicable to various goods and services also differ on the basis of these rules. To address such scenarios, there arises a requirement to revisit the master data such as Customer’s Bill To and Ship To Addresses, Warehouse Information, Inventory, and Item Masters etc. This has streamlined the tax determination and reporting thereafter 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. Major re-engineering work was required to build this tax engine for GST from scratch and still it is getting upgraded day by day.

Reporting and Workflows – Another major area of change with GST coming into being is the reporting framework and workflows. All the existing reports pertaining to the VAT indirect tax regime are obsolete and reports must be designed as per the GST Law. Consolidation of tax compliance in the ERP system will result in vulnerability on timely submission, as it becomes the single point of failure for overall reporting, and hence more robust workflows need to be planned and implemented. Bringing out these changes in an ERP environment is not an easy task and organizations should address these changes while wanting to sync with the GST regime. If you are using any version of Tally as accounting software, you can easily import all your sales and purchase data to ClearTax GST software and file your returns. Now you can integrate your Tally data and use ClearTax GST software for all GST compliance in just few clicks, using Tally connector.

Vendor Communication tool – Smart AI and machine learning when adopted can help many large enterprises manage accounts of their vendors easily. As GST system involves Invoice details upload on to the GSTN and matching between GST returns among the suppliers and recipients of supply transactions, this may involve regular tracking of vendor ledger accounts using the help of GSTR-2A that is auto-generated on GST portal. Building an automated vendor communication tool within ERP is most sought after feature that every taxpayer may be looking for. This is because it ensures timely claims of ITC and avoids later and last minute disputes with vendors, for any mismatches.

ERP must have a smart Recon tool year-end – Currently, with the amendments not being made in amendment returns but being made in the next month’s returns, it is necessary to have a strong reconciliation tool embedded in the ERP to track changes to avoid duplications.  

Also, the GST regime involves the matching of data between different returns like GSTR-2A with the GSTR-3B and GSTR-1 with the GSTR-3B and so on. This needs the powerful tool that can not only give the mismatch reports but also suggest actions and avoid duplication of entries in books. A matching between the books and returns is another tedious task that businesses face without automation. A comparison between the purchase register and GSTR-2A is very important that helps taxpayer claim 100% of the eligible ITC.

ClearTax GST software offers this Advanced Reconciliation Tool that comes with smart features. This tool helps you reconcile your purchase data with GSTR-2A in a 5X speed. This tool assures 100% of the ITC claim, intelligence to auto-identify and match invoices in the purchase data with the GSTR-2A downloaded from GSTN portal. Features of Advanced Reconciliation tool introduced by ClearTax GST :

1. Download Multi-Month GSTR-2A in one go
2. Intelligent and smart suggestion to link an invoice with the GSTR-2A data
3. Claim maximum ITC 4. ClearTax 4 buckets to identify data match, mismatch type –

a. Matched – Shows in this section when purchase invoices uploaded by you and GSTR-2A data downloaded from the GSTN portal matches based on default and suggestions from ClearTax

b. Mismatch In Values – Shows in this section when purchase invoices uploaded by you and GSTR-2A data downloaded from the GSTN portal doesn’t match which is highlighted in red on the software

c. Missing In My Data – Shows in this section when you have not uploaded purchase invoices but data is present on 2A side

d. Missing In Supplier Data (Not In 2A)My Data – Shows in this section when you have uploaded purchase invoices but data is not present on 2A side

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Quick Summary

Businesses faced challenges transitioning to GST, ERP changes needed. Discusses functional impacts like Chart of Accounts, Master Data, Tax Rule Engine, Reporting, and Workflows. Tally users can integrate data with ClearTax GST software. AI vendor communication and Reconciliation tool features needed in ERP for GST compliance. ClearTax offers Advanced Reconciliation Tool with smart features for ITC claim.

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