Banks that had hoped the government would allow them centralised registration under the goods and services tax (GST) appear to have been caught unaware. Now that they are required to register in each state, both public and private lenders are frantically trying to change their frontend information technology (IT) systems.
Some of the bigger private and multinational banks started modifying their frontend IT systems about four months ago and expect to be ready by July 1, when the new tax regime is set to be rolled out. Some public sector banks, scheduled banks and smaller private banks began reconfiguring their systems only about a week ago or haven't even started.
State-owned banks including Bank of Baroda, Indian Overseas Bank, Vijaya Bank and Indian Bank and scheduled banks Saraswat Bank, RBL and DCB called for proposals from IT companies only recently.
The challenge for banks under GST is to register in each state, unlike the current tax system. They will have to maintain state-wise revenue data and operate IT solutions to raise invoices for their business clients.
Experts said in the absence of GST-compatible frontend IT systems, banks won't be able to raise invoices and customers may not get input credits.
“Those banks that had started earlier now stand to gain as they have had time to prepare well, both on the tax and IT front. The approach taken by the banks to become GST compliant could also be different, depending on the proportion of B2B (business to business) and B2C (business to customer) services, the product segments where they opera te and the time when they started their GST preparation,“ said MS Mani, senior director at Deloitte Haskins & Sells.
Email queries sent to the PSUs and scheduled banks named in this re port did not elicit any response.
All banks have customer-facing frontend systems for specific opera tions such as forex, treasury and broking and backend systems to ta ke care of accounting and tax. Most backend systems are ERPs (enter prise resource planning), which need significant reconfiguration or a software patch to comply with GST.
Banks will be required to provide statewise data and compute state-wise tax payments, which they didn't have to do previously. In addi tion, the integration of the frontend and backend systems is proving to be tough, experts said.
“Banks would need to customise the frontend IT ecosystem to recog nise and deal with the state-centric compliances mandated under GST.
Any challenge faced by banks will surely trigger a multiplier effect as customers may not be able to avail input tax credit of the GST charged by banks. The cascading impact of this in the economy would be material,“ said Uday Pimprikar, partner, tax & regulatory services, EY India.
Many banks had hoped the government would allow centralised registration, which would enable them to continue with their existing IT systems, according to people familiar with their plans.
“The key challenges involved in the implementation have been the state-wise, real-time determination and computation of tax liability at transaction level and building infrastructure and capability to generate huge volume of invoices and multiple reporting across states. Having started the work of GST implementation in 2016 itself, we have been able to handle these challenges in time,“ said Jairam Sridharan, CFO of Axis Bank.
Many banks have roped in Indian IT companies including Wipro and Infosys to create intermediate frontend systems. Wipro did not respond to a separate questionnaire mailed by ET, while Infosys declined to comment.
The Economic Times, New Delhi, June 1, 2017
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