How Businesses Can Ensure A Smooth Transition To GST

The Goods and Service Tax is a revolutionary and historic step taken by the Government of India that promises to change the way Indian business is done. Through the creation of a single taxation system, GST implementation brings simplicity to business operations. GST has ushered a harmonized national market for goods and services and reduced cascading taxes drastically, thereby giving a major fillip to the Indian economy. With fewer taxes, tax rates and exemptions, businesses have a broader tax base, and improved compliance and revenue collections, along with greater transparency in commercial revenue generation.

The new tax regime is a big boost for Indian companies, however, becoming GST compliant means significant re-thinking of business processes and systems. To meet end-to-end GST transformation, companies require robust technology infrastructure that takes into account multiple GST requirements. Businesses need to adapt to advanced enterprise solutions, and automate tax processes using ERP software. GST directly impacts finance and accounting functions and companies face unprecedented increase in ‘cost of compliance’ with GST. In a transparent and fast paced business environment, companies require central data processing through data management systems. The overall process from PO creation, to invoice data capture, approval workflows to exception handling and supplier query management under Accounts Payable (AP) should be considered for automation.

GST implementation supports AP through the complete automation of indirect tax filing. Companies have significant tax-filing overheads as taxes must be filed monthly in all states of registration. Input Tax Credit (ITC) becomes a core P&L feature for companies due to higher service tax with GST at 18% and a broadened scope for reclaimable taxes. There is more transparency in data due to increased scrutiny on tax regulation compliance and taxes being reclaimed through online tax-filing on GSTN. Tax reclamations depend on vendors’ ability to file respective taxes in a timely and accurate manner, thus enabling better vendor management. SMEs and large organizations aim to utilize technology, involve third party vendors, and explore hybrid options to make GST filing seamless, transparent and timely.

Cloud-based software solutions can automate and align the AP process to meet regulatory compliance and data security requirements. AP departments need to file taxes frequently to be compliant and avail GST Input Tax Credits (ITC). Cloud software improves back-office productivity and Accounts Payable (AP) process efficiency with easy-to-use and quick-to-deploy solutions. Cloud-based invoice management also allow efficient cash-flows through improved ITC visibility.

The potential benefits of cloud based solutions are:

Efficient Accounts Payable Processing

For companies handling 100,000 invoices per annum, total cost involved in paper handling and archiving is about INR 15,000,000 per year, a significant hidden cost of Accounts Payable. Using invoice digitization, central storage and easy retrieval, companies can reduce transit time and increase efficiency by going paperless. Organizations, on average, also face 1-5% erroneous invoices a year with potential material impact to financials depending on invoice value. These invoices require recovery audits and intensive manual processes, adding to AP costs. Automated workflows reduce impact of erroneous invoices by 80%, providing significant savings.

Employee Productivity

With paper-based invoicing, office staff time is absorbed in inefficient manual processes. Lack of system-wide visibility also results in reactive communication on invoice approval and payment status, negatively impacting productivity. Automated invoicing results in auto-capturing of incoming invoice data, elimination of paper flow, and digital routing of payment approval. It also allows proper payments authorization through strong audit trails, fast approvals, reduced errors and compliance. Accurate data collection exceptions are handled quickly as they arise. Automated notifications are provided regarding invoice status at every step, eliminating exception-based communications that add to inefficiency. An organization can know precisely where every invoice is in the approval and payment cycle. The staff spends less time processing transactions, and employee productivity increases by 5-8 weeks per employee per year, releasing significant resources back to the organization.

Better Working Capital and Forecasting

Failure to adopt effective accounts payable processes could hamper a company’s working capital and ability to process invoices on a timely basis. Further, the company may not take advantage of available discounts and set longer or shorter payment terms with suppliers, depending on favorability. Cloud software solutions partners offer short-term credit financing that companies can use to take tax credits while still settling invoices to meet GST tax-filing requirements. This means paying suppliers on time without disrupting company cash flow, and increasing Days Payable Outstanding by 70-75%. Along with paying suppliers using credit financing, companies gain early visibility into small spends, and avail early-payment discounts while still leveraging ITC’s full potential.

Cloud solutions also help streamline requisition, making forecasting for demand more accurate. This helps make purchases faster through automatic routing of approval, more accurate by removing clerical and coding errors and compliant by working with approved vendors. Forecasting efficiency increases by at least 50% for organizations. Additionally, with integrated reporting, companies view and compare upcoming spends, conduct automated compliance checks and access vendor wise reporting for understanding spend pattern.

Reduced GST Overheads

AP spends can be reduced by investing in automation that aligns the whole invoice payment process with GST. GST-related costs of compliance, consulting, and outsourcing are reduced and companies manage quicker GST filing and fulfil the 30-day window for Input Tax Credit filing. Automated workflows, two-way/three-way matching and mobile-based approvals enable process efficiency. Additionally, the software ensures vendors are GST compliant by helping companies manage vendor records and allowing purchase with approved vendors.

Conclusion 

In India, transitioning from the existing indirect tax regime to GST, needs well-built technological infrastructure to help corporations remain tax compliant at all times. Technology can substantially help organizations operating across sectors with different processes and business models, navigate smoothly to GST as India looks forward to kicking off a new chapter. Most large organizations have invested in resources, technology, and new AP outsourcing partners, medium-level enterprises have invested in personnel and fully-automated systems.

Small enterprises, however are still grappling with manual accounting processes and are yet to become GST compliant. End-to-end automation enhances data capture, error reduction, cash cycles and ease of capturing GST, helping large, medium or small companies overcome the initial hurdles of GST compliance. India jumped 30 spots to secure a place among the top-100 countries on World Bank’s ease of doing business ranking list in 2018. GST implementation will help in scaling up India’s rankings in the global competitiveness index even further as technology takes centre stage for successful GST implementation across the country.