GST - Re-Engineering Business Process 22-1-10-Dilip Save

7/31/2019 GST - Re-Engineering Business Process 22-1-10-Dilip Save

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22nd January, 2010Dilip Save

Preparation for GST andRe-engineering BusinessProcesses


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Evolution of TAX structure in India

Compliance

Simplicity

Prior to 2005 2005 2010

Low Moderate High

Low

Moderate

High

Legacy Tax structure

Introduction of VAT

Introduction ofGST

Complex to administer&

Relatively Low compliance

Moderate Complexity to administer&

Relatively High Compliance

Simple to administer&High Compliance


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Benefits of GST

Government:

Consolidation of multiple Centre & State taxes Increased tax collection on wider tax base

Effective administration

Business:

Reduction in cascading effect of tax on tax Reduction in effective tax rate on goods & services

Ease of compliance

Economies of scale

Consumer:

Reduction in incidence of tax on goods / services

Benefits of scale & tax to manufacturers/service providers pass on


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GST : Impact on Operations

GST will impact every aspect of Business Operation.

Manufacturing Distribution SalesSourcing

ERP - Base Line operating system

ServiceProviders & IT Support

Business Impact Analysis

GST


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GST: Transition, 4 fold approach

BIA

Pricingto be

GST Efficient

Re EngineeringTax Management

Business

Drivers

will define

Supply Chain

Accounting / ERP

System to be

GST compatible

Mfg location

Sourcing strategyManufacturing strategyDistribution strategy

Stock transfersInter-state salesDirect despatchesStocking pointsGST efficient pricing

Alignment within businessTraining to all stake holdersExtract all eligible ITCsFiscal compliance

Transition / CutoffsERP to be GST compliantAutomation & interlocksStatutory reporting from ERPKPIs to monitor compliance &benefits

Thus GST Presents

BothChallenges and Opportunities

ToRe-Engineer Business

Processes & Operations


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Challenges Opportunities

- Greater Transprancy for mutual advantage - Capture all elegible ITC- Global benchmarking - Skin out credit from supplier price

- Develop & levrage local suplliers - Align and interface document flow -

PCP/PO/Inv..

- Capture Source and Destination at PO stage - Sourcing from registered suppliers only

- Correction of purchases transactions thru - Stock holding points and stk levelsissue of back to back Debit / Credit note

- Purchase details with state cut directly from

ERP - with Optisuite enabler

- Star Vendors

- Re-look at works contract / conversion

contracts

- Standardize distribution for all Imports

- Document flow - Process aligned Master Data Base

Sourcing

Business drivers will define Supply ChainSourcing

Sourcing strategy Negotiations

Documentation Alignment Payments


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- Economies of Scale v/s Refund

Central mfg > interstate trf > higher refund etc

- New challenges arising from single point tax

to multiple point

- Import of FG v/s mfg inhouse

- Capturing tax liability at the point of everytransaction / interstate movement

- In house manufacturing v/s contract / Jobwork manufacturing

w/c & admin cost , documentation

- Exemptions to be phased out; business to

explore new avenues for cost savings

- Leverage on Depot delivered cost v/s ex fty

cost

- STO = STI

Manufacturing

Business drivers will define Supply ChainManufacturing

Concept of manufacture will be irrelevant

New challenges from single point to multi point taxation.

All goods would attract GST at every value addition point

Evaluate forces which impact supply chain

- Some intrinsic to the organisation [value addition] Some market specific Some fiscal in nature

Influence of differential tax based on geographical locations will continue for some time (fiscal incentives)

Transition from origin based to a destination based tax regime. [ Tax on Consumption ]


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- Hub & Spoke arrangement to be reviewed in

line with GST

- Avoid multiple stocking points; consolidate

distribution centres

-Re-look at Frt negotiations and agreements

- Infrastructure at depots and stocking points

: need revamp.

- Large transport operaters v/s local players

- Valuation of goods for movement of FG on

Stock transfer.

- APO model to be modified to consider "

Service From Any where"(Advance Planning Optimizer)

Distribution

Business drivers will define Supply ChainDistribution

Avoid multiple stocking pointOpportunity to compress supply chain and derive cost advantage


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- Stock transfer - Impact on WC - Reginal deposts in place of state depots- Compress Distribution network

- Re-look Depot / RS documentation and

agreements

- Challenge to consolidate various RS points

- GT/MT/CSD to analyse and work on merits of

individual channel

- Leverage Direct Dispatch across the states

- Challenges wrt Price Inc / Drop &transitional issues.

- Set off of GST on distributions, sales &marketing spends.

- Evaluate Business impact on all categories

and businesses: action plans to address

them.

-Appropriate pricing decision

Sales

State-wise depot may be irrelevant;Regional depotsdirect dispatchWorking capital impact,

Pricing to be GST efficientSales


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Pricing to be GST efficient

GST Efficient pricing

- Examine precise impact for timely pricing decisions to protect margins- Strategic planning for products / services adversely affected- Strike a right balance between tax incidence and price

Operating cost /COGM

Low Low High High

Tax Incidence High Low High Low

Price Maintain

or

Product Mix Can change based on result of above twofactors and market demand


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ReEngineering Tax Management

Alignment within business

- Examine touch points for various business functions- Study financial impact; top down exercise with different scenarios- Business continuity plan to address specific concerns- Align business processes to be GST complaint

Training to all stake holders

- Awareness and training to business teams and operating people- Support to external stake holders : suppliers, distributors, etc.

Extract all eligible ITC- Tracking and settlement of credits in inter-state movements / sale- Set off / refunds of ITC in full and on time

Fiscal compliance- Full compliance to be driven through collective responsibility- Build in-house competencies and expertise


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ERP to be GST complaint- Engagement with SAP team- Build industry consensus on acceptable format; escalate to policy makers- Identify areas/processes requiring change; support operating groups in implementation- Prepare for complications arising out of partial implementation of GST in the country- Integrate all operations into ERP system

Automation and interlocks- Minimal human intervention- Ensure correctness and completeness

Transition / cut offs- Certification of stk on cut off dt

- Statutory reporting- Build enablers to facilitate reporting and compliance- Reconciliation of monthly and annual returns with financial ledger- Statewise accounting and trading account

Accounting / ERP system to be GST compatible

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- All operations need to be integrated into ERP - Statutory reporting from ERP

- Work with SAP to develop specifc req for

capturing and reporting of purchase and sale

data.

- Single data base for financial & statutory

returns; system to generate returns

- Tracking and settlement of credit in inter-state

movement - a challenge

- Fiscal compliance to be made easy; to be a

collective responsibility.

- CGST & SGST on each transaction to be

accounted separately with linkage to state of

origin &state of destination/consumption

- Masters (Product/Price/A/c to be aligned in

line with all India basis

- System to consolidate tax / set-off &

determine of tax liability

- Enhance payment tool ( Ariba ) capability to

handle complexity

- Reconciliation of monthly and annual returns

with financial ledger

- Full setoff on entity basis: a big opportunity

- Automation & interlocks in ITC

Accounting

Accounting / ERP system to be GST compatible

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Key Deliverables -Accounting

All operations need to be integrated into SAP system

State-wise accounting of all transactions a must to facilitate preparation of state-wise tradingaccount.

CGST & SGST on each transaction to be accounted separately with linkage to state of origin andstate of destination / consumption

Corrections to purchase and sale transactions thru issue of Debit / Credit notes

System to consolidate tax / set-off and determine of tax liability

Reconciliation of monthly / annual returns with financial ledger

Management of fiscal documents and records

Tracking and settlement of credit in inter-state movement a challenge

Ensure full refund of input tax credit on taxable goods and services


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Basic changes to - IT SystemsSAP or any other ERP

Discuss with SAP

Discussion internally with IT and functional team,

Discussed with industry to get insight to the BasicStructure changes required to align existing ERP to GSTscenario

Develop wrt transaction system e.g. on Sourcing Model,Sales Pricing, Current Excise, capture SGST & CGST

separately etc. Develop Obtisuite ( new application SAP supported) to

collate and report SGST/CGST data, state tradingaccount to be developed. ( Its SAP R3 enabledapplication and recognized by SAP)

Preparation of Accounting SOP

eg Changes required to ERPArchitecture to capture Dual TaxCapture , Source Destination informationState wise ledgerSimultaneous run of GST & current system


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Action Plan

People

Core team of cross functions in place to drive GST implementation

Cascade learnings to operation groups and stake holders

Systems

Engagement with SAP team for smooth changeover

Build industry consensus on acceptable format & escalate the same to the policy makers

Identify areas/processes requiring change; support operating groups for implementation

Prepare for complications arising out of partial implementation of GST in the country

Govt liaison etc

Engagement with Govt. to ensure concessional GST rates on foods portfolio

Redressal of issues arising out of GST (e.g. GST on inter-state stock transfers)

Business

Examine touch points for various business functions to leverage on GST

Examine financial impact on the company, top-down exercise considering different business scenariosawaiting announcement of GST rules and final structure


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Thank you !

GST - Re-Engineering Business Process 22-1-10-Dilip Save

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