Don't rush into a new tax without being prepared
Given the virtually stalled progress on the goods and services tax (GST), it is increasingly unlikely that the government would be able to kick off the new tax by April 2016. The best bet would be to target September and work towards that goal in right earnest. The government had shown the good sense to keep the option open to initiate the new tax at a date later than the original target of April 1, with the finance minister having gone on record to say that April 1was a very tight deadline. Now that many state governments and their finance ministers are busy putting out the fires lit by demonetisation, they are unlikely to focus on the business of getting GST going.
Most countries that have adopted a value-added tax like the GST had given their economic entities at least 12 months, after notifying the rules, to gear themselves up for compliance. Indians are, of course, from a different planet and can do the same task in half the time. But they do need those six months to prepare their information technology systems and reorganise internal business processes to comp ly with the new tax regime. If a compa ny has to get credit for the taxes it has paid while purchasing its inputs, it is not enough that it should get its docu mentation ready -the companies from which it had purchased its in puts must get its paperwork in order and must upload the documents to the GST Network, and the tax elements filed by the suppliers and the purchaser must match.Otherwise, companies will have to wait for indefinite periods for a refund. The only way around is for companies to reorganise their sourcing, cut out all small vendors and buy only from large companies that are guaranteed to get their documentation right at the outset. This would majorly upset a large swathe of companies that lose custom to big competitors.
The way to avoid incurring their wrath is for the government to work hard to finalise the laws and then the rules to implement the laws. Companies must be given six months thereafter to be GST-ready . The alternative is chaos that would create a backlash against the tax.
Economic times, 06.12.2016
GST: Looking beyond taxation
Regulators often overstate the seriousness of the work they do to defend every measure adopted in regulations, however flawed
As we move toward the implementation of the goods and services tax (GST) in India, corporations are forming task forces to assess the impact and update systems to conform to the proposed taxation structure. Of course, modifying IT systems is a priority and should be completed before the GST is implemented but we at Bain believe that the GST legislation provides an opportunity to consider a strategic and zerobased revamp of the entire inbound and outbound supply chain.
After recent discussions with CEOs of top companies, it has become increasingly clear that left to operational executives, businesses will simply conform to GST requirements. It is imperative, however, for the leadership team to view this as a transformational opportunity with possible implications in the competitive environment.
Companies should not simply seek to gain short-term cost reduction but rather recognise that supply chain optimisation will need to factor in future industry scenarios. Today’s suppliers and raw material sources are not likely to remain the same in five years. For example, for mined raw materials, much would depend on the life of the current mines and new sources that may emerge. For traded products, such as consumer durables, in which much of the manufacturing is outsourced, the footprint of suppliers can significantly change as excise and tax benefits for specific locations are eliminated. Similarly in manufacturing, the footprint that serves today’s demand points may not be optimal for the future. All of these emerging scenarios will need to be understood, and appropriate actions and migration plans would need to be defined and implemented.
India is not one country when it comes to demand growth, and different states are expected to have significantly different rates of growth. In addition, there is a trend toward urbanisation that can impact demand patterns. Outbound logistics and related infrastructure would need to be revamped, possibly consolidating stocking points and warehouses. Benefits of scale and availability of innovative technology solutions will enable automation across the entire supply chain, which could be a game changer.
Therefore, the changes to be made to the operating model of the business could be pretty significant, and thinking these through in a timely manner will be the key to future competitiveness.
But how does one go about this? Bain has developed a framework for supply chain design that recommends a strategic zero-based approach. The framework encompasses five steps toward developing the blueprint for a GSTenabled supply chain. Understand the business strategy. Define the implications of the business strategy, and establish the metrics around which the supply chain will be configured.
Establish the point of departure for the current supply chain. Configure the supply chain. Detail the operating model.
Understanding the business strategy would require insight into future customers, the value chain and the differentiators that top management has defined. Is the business model going to change, or are new customer segments, products and services going to become part of the strategic mix? In addition, we would recommend a specific discussion concerning the competition. Which competitors will gain or lose relative to our business? Some may be strategically advantaged because of their existing supply or manufacturing base. How are we going to react? Are we expecting any service level changes in the supply pattern to the channel or to customers? The output is a clear articulation of the likely imperatives for the proposed supply chain.
The next step is to define the implications for the supply chain. Typically, these are determined through a specific set of metrics, such as agility, service levels, cost, customer satisfaction, reliability and capital efficiency. Working capital requirements may increase with GSTcompliant systems that would require a greater emphasis on operational efficiency. These metrics also serve as the parameters to measure the efficacy of the proposed supply chain.
In parallel, establishing the point of departure is important as it will be the starting point for any change. What is the supplier base, manufacturing and distribution footprint? What is the capacity, organisational structure, IT and application software backbone? Also, there may be some practical impediments due to some contractual obligations.
Configuration of the supply chain would involve developing the revised network (supplier, manufacturing and outbound). In addition, the use of technologies that provide greater visibility into the supply chain would have to be evaluated as well as possible new and innovative vendors for services such as logistics and warehousing.
The final step would be to detail the operating model, which would involve laying out the basics for how the proposed supply chain would work, including people, organisations, processes and technologies. Organisational changes could be quite significant, and change management issues regarding location closures or new skill requirements would have to be addressed. Specific operating procedures and instructions would need to be developed. This step would also establish the implementation plan, which would then be monitored by what one might call a GST-enabled supply chain programme office. After all, time and resources are finite to achieve this transition to the new environment.
In summary, whatever the approach that companies eventually decide to follow to get to a GST-enabled supply chain, we would strongly recommend looking beyond the pure taxation elements. Your competitors could be several steps ahead of you.
Business Standard, 06.12.2016
10 steps towards hassle-free GST preparation
Without doubt, the roll-out of GST will turn out to be the most significant and far-reaching indirect tax reform that India has ever seen. It is going to impact almost all industries and businesses, some more than others. In the process, it will create a common Indian marketplace and reduce the cascading effect of taxes. To put it succinctly, GST will subsume all indirect taxes and create just one rate for the entire nation.
In view of the importance of this legislation, it makes sense to be fully prepared for it. Here is a list of 10 steps that corporate entities can take to implement GST in a hassle-free manner.
1. Upgrade ERP systems: In order to evaluate new tax structures, other cost implications, companies need to upgrade their ERP systems. This is essential to accommodate the complexities of calculating GST.
2. Get a fix on which software modules need to be changed: As GST will have more of an impact on data management and taxation, organizations need to look into their present versions of finance solutions and plan accordingly. The revamp exercise is not going to be a standard software patch that can be applied to their systems at one go. Companies will have to be very clear about which modules of their software are going to be affected, and how they will correlate the changes with GST.
3. Revamp IT and accounting systems: Companies need to evaluate the impact of GST on IT and accounting systems. Partnering with software companies can make the transition easier and quicker.
4. Familiarization with GST Network: GST Network (GSTN) is the one-stop tax portal that the Government has set up to provide tax filing and input credit services. Companies need to train their finance departments and familiarize them with the new regulations by holding GSTN workshops and sessions.
5. Engage with the government: Bigger companies can engage with the government, the finance ministry and various chambers of commerce for an expedited understanding of GST to ensure smooth implementation and compliance. They can ask for detailed disclosures of rules and procedures.
6. Follow best practices of other countries: Companies can prepare themselves better for GST implementation by gaining an understanding of best practices of other nations with regard to consolidated indirect tax systems.
7. Train suppliers: Larger multinationals should also encourage their smaller suppliers to begin preparing for the switch to GST in order to make supply chains more efficient.
8. Update backend systems: Companies need to keep their backend systems updated in order to transition to GST seamlessly.
9. Monitor progress: Getting ready for GST compliance is a huge challenge. Companies need to keep on monitoring their progress from time to time so as not to fall back.
10. Take employees into confidence: As companies take steps to get ready for GST compliance, they may encounter disruption of internal processes. They need to take their employees into confidence and explain that this is a temporary phenomenon, and things will fall into place soon.
The roll-out of GST has already been delayed due to lack of a political consensus. The government is now hoping to kick-start the initiative on April 1, 2017. That leaves very little time for companies to upgrade their systems to comply with the new tax regime. Several companies have already taken steps to be GST-compliant; others need to catch up fast.
http://www.dqindia.com
Given the virtually stalled progress on the goods and services tax (GST), it is increasingly unlikely that the government would be able to kick off the new tax by April 2016. The best bet would be to target September and work towards that goal in right earnest. The government had shown the good sense to keep the option open to initiate the new tax at a date later than the original target of April 1, with the finance minister having gone on record to say that April 1was a very tight deadline. Now that many state governments and their finance ministers are busy putting out the fires lit by demonetisation, they are unlikely to focus on the business of getting GST going.
Most countries that have adopted a value-added tax like the GST had given their economic entities at least 12 months, after notifying the rules, to gear themselves up for compliance. Indians are, of course, from a different planet and can do the same task in half the time. But they do need those six months to prepare their information technology systems and reorganise internal business processes to comp ly with the new tax regime. If a compa ny has to get credit for the taxes it has paid while purchasing its inputs, it is not enough that it should get its docu mentation ready -the companies from which it had purchased its in puts must get its paperwork in order and must upload the documents to the GST Network, and the tax elements filed by the suppliers and the purchaser must match.Otherwise, companies will have to wait for indefinite periods for a refund. The only way around is for companies to reorganise their sourcing, cut out all small vendors and buy only from large companies that are guaranteed to get their documentation right at the outset. This would majorly upset a large swathe of companies that lose custom to big competitors.
The way to avoid incurring their wrath is for the government to work hard to finalise the laws and then the rules to implement the laws. Companies must be given six months thereafter to be GST-ready . The alternative is chaos that would create a backlash against the tax.
Economic times, 06.12.2016
GST: Looking beyond taxation
Regulators often overstate the seriousness of the work they do to defend every measure adopted in regulations, however flawed
As we move toward the implementation of the goods and services tax (GST) in India, corporations are forming task forces to assess the impact and update systems to conform to the proposed taxation structure. Of course, modifying IT systems is a priority and should be completed before the GST is implemented but we at Bain believe that the GST legislation provides an opportunity to consider a strategic and zerobased revamp of the entire inbound and outbound supply chain.
After recent discussions with CEOs of top companies, it has become increasingly clear that left to operational executives, businesses will simply conform to GST requirements. It is imperative, however, for the leadership team to view this as a transformational opportunity with possible implications in the competitive environment.
Companies should not simply seek to gain short-term cost reduction but rather recognise that supply chain optimisation will need to factor in future industry scenarios. Today’s suppliers and raw material sources are not likely to remain the same in five years. For example, for mined raw materials, much would depend on the life of the current mines and new sources that may emerge. For traded products, such as consumer durables, in which much of the manufacturing is outsourced, the footprint of suppliers can significantly change as excise and tax benefits for specific locations are eliminated. Similarly in manufacturing, the footprint that serves today’s demand points may not be optimal for the future. All of these emerging scenarios will need to be understood, and appropriate actions and migration plans would need to be defined and implemented.
India is not one country when it comes to demand growth, and different states are expected to have significantly different rates of growth. In addition, there is a trend toward urbanisation that can impact demand patterns. Outbound logistics and related infrastructure would need to be revamped, possibly consolidating stocking points and warehouses. Benefits of scale and availability of innovative technology solutions will enable automation across the entire supply chain, which could be a game changer.
Therefore, the changes to be made to the operating model of the business could be pretty significant, and thinking these through in a timely manner will be the key to future competitiveness.
But how does one go about this? Bain has developed a framework for supply chain design that recommends a strategic zero-based approach. The framework encompasses five steps toward developing the blueprint for a GSTenabled supply chain. Understand the business strategy. Define the implications of the business strategy, and establish the metrics around which the supply chain will be configured.
Establish the point of departure for the current supply chain. Configure the supply chain. Detail the operating model.
Understanding the business strategy would require insight into future customers, the value chain and the differentiators that top management has defined. Is the business model going to change, or are new customer segments, products and services going to become part of the strategic mix? In addition, we would recommend a specific discussion concerning the competition. Which competitors will gain or lose relative to our business? Some may be strategically advantaged because of their existing supply or manufacturing base. How are we going to react? Are we expecting any service level changes in the supply pattern to the channel or to customers? The output is a clear articulation of the likely imperatives for the proposed supply chain.
The next step is to define the implications for the supply chain. Typically, these are determined through a specific set of metrics, such as agility, service levels, cost, customer satisfaction, reliability and capital efficiency. Working capital requirements may increase with GSTcompliant systems that would require a greater emphasis on operational efficiency. These metrics also serve as the parameters to measure the efficacy of the proposed supply chain.
In parallel, establishing the point of departure is important as it will be the starting point for any change. What is the supplier base, manufacturing and distribution footprint? What is the capacity, organisational structure, IT and application software backbone? Also, there may be some practical impediments due to some contractual obligations.
Configuration of the supply chain would involve developing the revised network (supplier, manufacturing and outbound). In addition, the use of technologies that provide greater visibility into the supply chain would have to be evaluated as well as possible new and innovative vendors for services such as logistics and warehousing.
The final step would be to detail the operating model, which would involve laying out the basics for how the proposed supply chain would work, including people, organisations, processes and technologies. Organisational changes could be quite significant, and change management issues regarding location closures or new skill requirements would have to be addressed. Specific operating procedures and instructions would need to be developed. This step would also establish the implementation plan, which would then be monitored by what one might call a GST-enabled supply chain programme office. After all, time and resources are finite to achieve this transition to the new environment.
In summary, whatever the approach that companies eventually decide to follow to get to a GST-enabled supply chain, we would strongly recommend looking beyond the pure taxation elements. Your competitors could be several steps ahead of you.
Business Standard, 06.12.2016
10 steps towards hassle-free GST preparation
Without doubt, the roll-out of GST will turn out to be the most significant and far-reaching indirect tax reform that India has ever seen. It is going to impact almost all industries and businesses, some more than others. In the process, it will create a common Indian marketplace and reduce the cascading effect of taxes. To put it succinctly, GST will subsume all indirect taxes and create just one rate for the entire nation.
In view of the importance of this legislation, it makes sense to be fully prepared for it. Here is a list of 10 steps that corporate entities can take to implement GST in a hassle-free manner.
1. Upgrade ERP systems: In order to evaluate new tax structures, other cost implications, companies need to upgrade their ERP systems. This is essential to accommodate the complexities of calculating GST.
2. Get a fix on which software modules need to be changed: As GST will have more of an impact on data management and taxation, organizations need to look into their present versions of finance solutions and plan accordingly. The revamp exercise is not going to be a standard software patch that can be applied to their systems at one go. Companies will have to be very clear about which modules of their software are going to be affected, and how they will correlate the changes with GST.
3. Revamp IT and accounting systems: Companies need to evaluate the impact of GST on IT and accounting systems. Partnering with software companies can make the transition easier and quicker.
4. Familiarization with GST Network: GST Network (GSTN) is the one-stop tax portal that the Government has set up to provide tax filing and input credit services. Companies need to train their finance departments and familiarize them with the new regulations by holding GSTN workshops and sessions.
5. Engage with the government: Bigger companies can engage with the government, the finance ministry and various chambers of commerce for an expedited understanding of GST to ensure smooth implementation and compliance. They can ask for detailed disclosures of rules and procedures.
6. Follow best practices of other countries: Companies can prepare themselves better for GST implementation by gaining an understanding of best practices of other nations with regard to consolidated indirect tax systems.
7. Train suppliers: Larger multinationals should also encourage their smaller suppliers to begin preparing for the switch to GST in order to make supply chains more efficient.
8. Update backend systems: Companies need to keep their backend systems updated in order to transition to GST seamlessly.
9. Monitor progress: Getting ready for GST compliance is a huge challenge. Companies need to keep on monitoring their progress from time to time so as not to fall back.
10. Take employees into confidence: As companies take steps to get ready for GST compliance, they may encounter disruption of internal processes. They need to take their employees into confidence and explain that this is a temporary phenomenon, and things will fall into place soon.
The roll-out of GST has already been delayed due to lack of a political consensus. The government is now hoping to kick-start the initiative on April 1, 2017. That leaves very little time for companies to upgrade their systems to comply with the new tax regime. Several companies have already taken steps to be GST-compliant; others need to catch up fast.
http://www.dqindia.com
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