Implications of GST on Business Software and ERP Systems

Organizations today are driven by specialised processes which are at times unique to their business. Most of these processes often holds 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 formalises all the workflow for them.

Understanding ERP

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 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 keeps on evolving. These systems are also required to keep assimilate all the legal and regulatory requirements into their compliance and reporting framework.

Impact of GST

We are now witnessing one such paradigm shift with the introduction of Goods and Services Tax in India. GST is all set to subsume a major set of central and state level indirect tax levies. Consequently all these business softwares will require a major re engineering to build all the logics addressing the new tax regime.

GST will impact the ERP systems at various level and will require major customization for different set of transactions. This will require to re define master level as well as transaction level data flows and reporting.

Below are some of the areas wherein business will require to revisit their ERP system and make necessary changes for smooth transition into the new regime.

Chart of Accounts – Earlier organizations involved in 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, there arise 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 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. Major 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 vulnerability on timely submission, as it becomes single point of failure for overall reporting, and hence more robust workflows needs to be planned and implemented.

Bringing out these changes in an ERP environment is not an easy task. Organizations should must addressing these changes for an easy transition into the new tax regime. This may also require 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.

Archit Gupta
Co-founder and CEO
www.cleartax.com