the GST Effect: How CIOs across Verticals are Impacted

A look at how the IT infrastructure across various businesses stands to get impacted by the roll out of GST

Goods and Services Tax (GST) is dubbed as India’s most

radical tax reform. It is touted as having the potential to

ramp up the country’s GDP by as much as 2 percentage

points. GST is expected to impact key business areas such as

tax compliance framework, pricing of services and products

and employee skill set.

Here is a look at what the new taxation regime means for

different verticals, and where should their respective

technology decision makers focus.

Goods and Services Tax (GST)

GST is touted as

having the potential

to ramp up the

country’s GDP by as

much as

2 percentage points.

It is expected that the pharmaceutical sector will attract a

lower tax slab of around 12 percent GST. If this happens,

medicine costs will remain the same given that the current

generic rate falls in the same range.

Presently, a large number of pharmaceutical companies

have established their manufacturing facilities at locations

(such as J&K, North-eastern states and Baddi in Himachal

Pradesh) where the state and central governments have

extended incentive schemes and tax exemptions. It is

important that this approach of geography-based tax

benefit is carried forward in the GST regime as well because

its absence could impact medicine costs.

For pharmaceutical companies, there is an opportunity to

modify and modernize their existing supply chains. As GST

would be creditable on sale of inter-state goods, it would be

important for companies to reduce logistic costs and ramp

up operational efficiency, thereby impacting their profitability.

Technology decision-makers in this vertical would also have

to alter their IT systems, and help meet the new tax

compliance requirements.

Pharmaceutical Industry

For pharmaceutical

companies, there is

an opportunity to

modify and

modernize their

existing supply

chains.

Owing to its peculiar characteristics, the impact of GST on the financial services sector is

expected to be both unique and challenging. Not only is the financial sector highly regulated, it

also involves high commercial and personal risks.

The kicking-in of the new taxation system will pose two big challenges. First, organizations

won’t be able to manage compliances manually, and second,

they would definitely not be able to do so in real time.

The answer to both these challenges lies in deploying

technology seamlessly. CIOs will have to invest in solutions

that can analyze information in the context of varied

conditions thrown up by GST in real time, and come up with

output that matches GSTN templates.

While the capex on such solutions will vary from organization

to organization, CIOs will have to consult and work closely

with the various SBU (Strategic Business Unit) Heads. This will

ensure easy budget allocation and proper business-

technology alignment.

Financial Services

The impact of GST

on the financial

services sector is

expected to be both

unique and

challenging.

Ranked amongst the most vital infrastructure services,

telecom has an enormous outreach that connects a billion

subscribers across the country. The vertical won’t be left

untouched by the introduction of GST. The new system

enables state governments to impose tax on services also.

This calls for a decentralized compliance and registration

requirement that necessitates clearly defining the ‘place of

supply’ so as to prevent any jurisdiction-related issues.

To determine the ‘place of supply’, the subscriber’s address is

mandatory. This puts immense burden on telecom operators

to keep their databases updated in real time. The IT

department, therefore, has to gear up to meet this eventuality.

The challenge for CIOs will get further compounded because

telecom circles don’t mirror geographies boundaries of UTs

and states. As a result of this anomaly, it will be tough to

calculate state-wise revenues. For CIOs, this would entail

humongous IT and accounting system overhaul.

Telecom

GST calls for a

decentralized

compliance and

registration

requirement that

necessitates clearly

defining the ‘place

of supply’...

The stock transfer model, adopted by FMCG companies,

would witness a change once GST is rolled out. While stock

transferring of goods till now didn’t attract VAT/CST, once

GST is enforced, IGST (Integrated Goods and Service Tax) will

be applicable on it.

Although IGST is offered as credit at the location of the

consignee, a working capital impact would be felt due to

IGST paid on transferring stock for the inventory holding

period. Alternatively, when there is interstate goods are

sold directly from factory to customers, IGST would be

applicable, which would be creditable to customers.

Against this backdrop, FMCG players would have to revisit

their distribution network for enhancing customer service

levels and optimizing tax costs. The IT department would

have to modify systems in terms of changes in IT masters,

terms of recording, invoicing formats, tax coding systems.

FMCG

While stock

transferring of

goods till now

didn’t attract

VAT/CST, once GST is

enforced, IGST

(Integrated Goods

and Service Tax) will

be applicable on it.

With the deadline (July 1, 2017) for rolling out GST approaching closer by the day, enterprises

across verticals are readying themselves for the transition. For a smooth shift to the new

taxation regime, enterprises would have to take up a comprehensive business transformation

approach involving readiness of IT systems, reviewing of supply chain models, and aligning

processes, policies, and controls across the organization as per GST requirements.

This is imperative for eliminating business disruption and fully adhering to GST compliance.