Reengineering business process under GST regime

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Re-engineering business processunder GST regime
ASSOCHAM 23rd Dec 2009 Dilip Save Hindustan
Unilever
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Contents

• Evaluation of tax structure in India
• Why do we need GST ?
• Benefits of GST
• GST Impact on Operations
• Transition Plan
• Business Drivers
• Pricing to be GST Efficient
• Re engineering Tax Management
• Accounting / ERP system to be GST compatible

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Evolution of TAX structure in India
Simple to administer High Compliance
Introduction of GST
Low Moderate
High
Simplicity
Introduction of VAT
Legacy Tax structure
Moderate Complexity to administer Relatively
High Compliance
Complex to administer Relatively Low
compliance
Prior to 2005 2005 2010
Compliance
Low Moderate High
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Why do we need GST ?

• Multiple taxes ED , ST , VAT etc
• Multiple rates
• Small Tax Base
• Cascading effect of taxes
• Higher cost of administration
• Self assessment driven model
• Full Seamless - ITC
• Alignment with Global Trends
• Cost
• Efficiency
• Administration

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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.

ERP - Base Line operating system
Service Providers IT Support
GST
Business Impact Analysis
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GST Transition, 4 fold approach
Transition / Cutoffs ERP to be GST
compliant Automation interlocks Statutory
reporting from ERP KPIs to monitor compliance
benefits

• Business
• Drivers
• will define
• Supply Chain

Mfg location Sourcing strategy Manufacturing
strategy Distribution strategy
Thus GST Presents Both Challenges and
Opportunities To Re-Engineer Business
Processes Operations

• Pricing
• to be
• GST Efficient

Accounting / ERP System to be GST compatible
BIA
Re Engineering Tax Management
Alignment within business Training to all stake
holders Extract all eligible ITCs Fiscal
compliance
Stock transfers Inter-state sales Direct
despatches Stocking points GST efficient pricing
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Business Drivers would define Supply Chain- 1
LOCATION

• Influence of differential tax based on
  geographical locations will continue for some
  time
• Evaluate forces which impact supply chain
• - Some intrinsic to the organisation
  value addition
• Some market specific
• Some fiscal in nature
• Transition from origin based to a destination
  based tax regime.
• Tax on Consumption

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Sourcing
Business Drivers Would define Supply Chain- 2
SOURCING

• Sourcing strategy - Local
• - Interstate / Intra state
• - Imports ( Will attract CGST/SGST)
• - Registered suppliers
• - Star vendors ( ZERO rejections)
• Negotiations - Transparency
• - Skin out all the benefits
• Documentation - Purchase Orders
• - Invoicing
• Alignment - Firm delivery schedules
• - Stock holdings ( High v/s Low)
• - Obsolescence
• Payments - Proper segregation in invoicing
• - Payment Tool, Capability to handle
  complexity and MIS

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Business Drivers would define Supply Chain- 3
MANUFACTURING

• Concept of manufacture will be irrelevant
• New challenges from single point to multi point
  taxation.
• In-house manufacture v/s contract manufacturing
• Economies of scale v/s refunds
• Financial impact once exemptions are phased out

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Business Drivers would define Supply Chain- 4
DISTRIBUTION PLANNING

• State-wise depot irrelevant regional depots /
  direct despatch may be an option
• Avoid multiple stocking points
• Infrastructure at depots and stocking points
  need for revamp
• Opportunity to compress supply chain and cost
  advantage
• Financial impact of stock transfers

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Pricing to be GST efficient 1

• Minimize stock transfers
• - Large financial burden working capital impact,
  
• - Stock covers
• - Risk of obsolescence
• Leverage Direct Dispatch
• - Direct despatch better service, faster
  realisation
• Cost effective
• Stocking Points
• - Eliminate intermediate stocking points to
  reduce documentation, working capital and
  handling costs

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Pricing to be GST efficient - 2

• 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

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Re Engineering 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.
• Support to build enablers with in and stake
  holders
• Extract eligible ITC in full
• 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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• Accounting / ERP system to be GST compatible
• -

• Transition / cut offs
• Certification of cut off dates
• Documentation to protect ITC in line with closing
  procedure
• Call on stock up and stock down
• ERP to be GST complaint
• Engagement with SAP team for smooth changeover
• 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
• Statutory reporting
• Build enablers to facilitate reporting and
  compliance
• Reconciliation of monthly and annual returns with
  financial ledger

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Are YOU ready for GST ?

• Is your cross functional core team in place ?
• Is your business continuity plan in place ?
• Have you identified specific industry concerns ?
• Are you participating in the GST process ?

Optimize and Leverage on Supply Chain
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Thank you !