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SAP Thought Leadership Paper

The Alpha and the Omega of GST


Table of Contents

3 GST – The New Beginning

5 GST – Key Imperatives

9 Business Processes Perspective

13 Need to get GST ready

17 SAP S/4HANA – Your trusted partner in the journey

20 Fasten your seat belts

36 Industry specific implications of GST

46 Recent developments that impact your business

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The Alpha and the Omega of GST

GST – The New Beginning

Have you begun 2017-GST Implementation? Accelerate the implementation


with SAP S/4HANA. Financial Year 2017-18 will be defining year for India Inc. with
the advent of much awaited Goods and Services Tax (GST) reform. GST is
expected to have a far reaching and wide impact on business, society and general
economy. It is also expected to address the current issue of inefficiencies in the
tax system, prevent cascading impact of multi-level taxation, plug the revenue
leakages and raise the transparency levels in business.

Smooth transition to the GST is one of the top 3 Selection of right technology enabling and
agenda items on the Board and Management’s facilitating the smooth transition to GST as well
strategy and execution list. With GST, the past as creating a competitive advantage is going to
no longer holds good and future is laden with be the key differentiator for all businesses to
number of implementation challenges. GST is succeed through and post-GST.
also expected to significantly impact all key
business processes, be it Procurement to Pay There are multiple steps involved in
(P2P), Record to Report (R2R), Order to Cash implementation of GST, which are as follows:
(O2C) and Budgeting, Planning and Forecasting
inter alia. To ensure smooth transition of all key
business processes through the wave of GST, it
is critical for all organizations to be ready with a
cutting edge technology solution.

6 Go-live and “GST On” business

5 Post implementation testing

Resource allocation and engagement with


4 trusted partner in implementation

3 Design blue print for implementation

2 Journey from “As-Is” – “To-Be” status

1 Evaluate imapct on overall business

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The Alpha and the Omega of GST

One of the biggest challenges for businesses is to various aspects of the entity’s value chain. SAP
understand the enormity of the changes brought S/4HANA offers end to end program
by GST and be ready in a timely manner with the management capabilities with efficient use of
implementation tools. The overhaul brought into technology solution to deliver maximum value to
by GST will impact the basic business operating the business.
model, present new opportunities for growth and
also room for the enhancement of margins. The GST regime will have significant influence
not only on large business houses, but also on
IMPACT OF GST ON KEY BUSINESS AREAS the Micro, Small and Medium Enterprises sector
GST will be one of the biggest game changers for (MSME). Non/under recording/reporting of
the Indian economy and all key business sectors, purchase and sales transactions, fragmentation
be it organized or unorganized. Below are the key in the methods of availment and utilization of
areas likely to be impacted by GST credits will be the things of past. Tiny units,
implementation. based on the threshold turnover criteria, will be
out of the GST net. Even if the turnover increases
Organizations need to formulate business cases to another threshold level, the introduction of
to evaluate the impact of changes, develop 1%-2% self-declared turnover tax will be a
robust plan for overall program management biggest relief for such entities.
and identify integration opportunities across

Supply chain
Recording and accounting
of tax transactions
Technology enablement
Tax structuring decisions
Design of contract
arrangements
Key Impact Areas Computation of taxes
Financial reporting
Payment of taxes
Working capital
management
Compliance management
Pricing arrangements

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The Alpha and the Omega of GST

GST – Key Imperatives

Amongst number of business reforms, GST is taxes across various States in India inter alia.
the key Indirect Tax Reform that will impact the Thus, the current structure leads to significant
economy. The current indirect tax system does level of inefficiencies from the revenue
have Value Added Taxation (VAT) methodology perspective and difficulties of doing business in
throughout the value chain i.e. from India. GST is directed to subsume all current
manufacturing of goods and services to its indirect taxes with certain exceptions like
ultimate consumption. customs duty.

However, there is lack of uniformity among With GST coming into force, the current indirect
various aspects of current indirect tax which tax structure existing in India, will undergo
includes rates, point of taxation, and type of change, which will be broadly as under:

Excise Duty

Service Tax

Central Sales Tax


State GST (SGST)
State VAT
Central GST (CGST)
Entry Tax
Integrated GST (IGST)
Luxury Tax

Entertainment Tax

Other Local Taxes

Implementation of GST is expected to bring Governments, both at Central as well as State,


multiple benefits for various types of business will also benefit from implementation of GST.
entities in India. Consumer as well as Some of the key benefits are as follows:

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The Alpha and the Omega of GST

Ease of doing business

Level playing field for business


Key Benefits of GST

Savings on the end to end operational costs across the value chain

Elimination of the geographical fragmentation of Indian market

Elimination of cascading effect of multiple taxes

Reduction in gap between organized and unorganized sector

GST will require multiple changes in the business and high volumes of vendor compliance level
operations. Companies will need to scale up the management.
technology infrastructure for ensuring high level
of vendor tax compliances, system to maintain GST offers comprehensive indirect tax regime
adequate level of vendor database, review of the covering taxation from the point of manufacturer
compliances at supplier’s end, monitor the to the last mile taxation of goods and services in
periodicity of the tax payments and filings. the hands of the ultimate consumer.

SAP S/4HANA qualifies the businesses in The key events for taxation of good and services
smooth transition in high level compliance as against different points of taxation under
oriented GST environment and is capable of various laws are as indicated below:
administration of complex tax configurations

Point of taxation as per existing Indirect Tax laws GST Regime


Excise Duty – On manufacture • Supply of Goods or Services
• Includes sale, removal, disposal
Sales Tax – Transfer of ownership in goods
• A term of wide scope and coverage

Service Tax – Provision of taxable services

Customs Duty – Crossing of Indian territory or waters

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The Alpha and the Omega of GST

Number of taxes out of scope of GST: An important aspect of GST is the goods and
services are not differentiated throughout the
• Basic Customs duty entire value chain. Since GST is destination
• Export Duty based tax, as compared to current origin based
• Road/Passenger Tax taxation, the ultimate consumer will bear the full
• Toll charges incidence of GST. All other players in the supply
• Property Tax chain will claim set-off of taxes for upstream or
• Electricity Duty downstream transactions.
• Stamp duty
• Certain cases entertainment tax levied by
local authorities

Key differences between existing Indirect Tax and the GST regime

Area Existing Indirect Tax GST Regime


Mechanism
Goods and Services Differentiation exists No differentiation from taxability perspective

Incidence of indirect tax Origin based Destination based

Power Centre has power to tax service Both Centre and State has power to tax
services

Number of Taxes Multiple Composite GST with dual structure of


taxation

Tax Rates Multiple and different across States for Uniform tax on goods and services
same products

Exemptions Multiple Fewer expected

Input Tax Credit/Set-off Not available across taxes Seamless flow of tax credit except for 1%
additional levy

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The Alpha and the Omega of GST

KEY ISSUES AND CHALLENGES OF EXISTING WILL YOUR ORGANIZATION BE GAINING


INDIRECT TAX REGIME SIGNIFICANT ADVANTAGE POST GST?
• 8 different rates based on value and specific It is expected that the tangible business benefits
rates based on quantity/capacity/volume for of GST will be realized over a long time, the
imposition of excise duty creating ability to gain mileage depends on readiness of
fragmentation across manufacturing value the businesses to quickly identify, finalize
chain business decisions and respond effectively to
• Different Sales Tax/VAT rates for similar evolving post GST business environment.
product across two or more States in India
leading to creation of tax favourable regions One of the key deciding factors is the
within the country technological capability of the businesses that
• Centre and State has different list of goods helps management to spot opportunities,
and services exempted from taxes leading to formulate strategies to exploit such
unevenness in pricing of the products and opportunities and evolve a sustainable way to
services maintain such positioning. SAP S/4HANA is a
• Inability of India Inc., to set off taxes paid in key enabler for implementation of GST and
one State against similar liability in another provides following solutions:
State impacting working capital management,
increasing the procurement cost etc.

Compliance

Pricing Strategies (B2C, B2B)

Product Costing

Margin Analysis

Cash Flow Forecasting/Working Capital Impact for Tax Flows

Framework for SOP Implementation

• Master Data Management


• Financial Closing
• Tax Compliance Management
• Customer Dispute and Input Tax Credit

Shared Services

• Contract Management
• Invoice Automation
• Help Desk

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The Alpha and the Omega of GST

Business Processes Perspective

The impact of GST across the value chain


needs to be evaluated on various aspects of
the business:

Business Area/Function/ Key sub activities that will be SAP Solutions


Process impacted
Overall GST Implementation program • Engagement with Business • SAP S/4HANA
management • Scheduling and monitoring of project • TAXINN with GST Compliance
delivery timelines
• Quality assurance
• Budgetary approvals
• Ensuing macro and micro level
readiness of the business

Taxation and Compliance Management • Registration across Centre and States • TAXINN with GST Compliance
• Documentation management • SAP Shared Services Framework
• Monitoring systems for returns • SAP GRC – Access Control,
• Input tax credit Process Control
• Allied statutory compliance and • SAP Master Data Governance
documentation maintenance • SAP TAO

Procurement to Pay (P2P)/Supply • Redesign of the supply chain operating • SAP S/4HANA
Chain/Commercial model and delivery mechanism (Time • SAP Integrated Business Planning
to market, cost to market) Solutions for
• Evaluation of flexibility in the supply - Sales and Operations Planning
chain - Inventory Planning
• Decision related to Consolidation or - Supply
decentralisation of the key • SAP APO + Advance Simulation
warehousing locations, depots, CNF, • SAP Strategic Freight Procurement
Distributor and Stockists points • SAP Transportation Management
• Evaluation of criteria/algorithms used • SAP Extended Warehouse
for comparison of quotations Management
• Evaluate changes to pricing and other
key arrangements with the Vendors
• Review of the vendor business
allocation
• Management of Input Credits (new as
well as transitional provisions)
• Evaluate dependency on sourcing
locations/concentration of vendors
• Make v/s Buy Decisions
• Updating of the vendors master and
ensuring compliance with new
requirements

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The Alpha and the Omega of GST

Business Area/Function/ Key sub activities that will be SAP Solutions


Process impacted
• Changes in the Material Master/Item
Codification based on tax rates and
classification
• Redesigning of purchase order
documentations
• Review and redesign of the inventory
management strategies
• Review and evaluate the
transportation strategies

Order to Cash (O2C), Sales, Marketing • Evaluation of long term pricing • SAP Receivables Management
arrangements with the customers • SAP Cash Management on SAP
• Updating of the customer master to S/4HANA
ensure compliance with the GST • SAP Business Planning add-on on
requirements SAP S/4HANA
• Evaluation of the distribution channel • SAP Net Margin Analysis on SAP
suitability S/4HANA
• Maintenance of margin for the channel • SAP Predictive Analytics
partners

Manufacturing/ Production/ • Arrangements with the Contract • SAP S/4HANA


Operations Manufacturing/Tolling parties/ • SAP Integrated Business Planning -
Sub-contracting Inventory Planning
• To and fro movement of materials for • SAP Integrated Business Planning
job work - Supply
• Evaluation of scenarios where the • SAP APO + Advance Simulation
input material is provided to the • SAP Profitability and Cost
contract manufacturer Management
• Locational changes based on • SAP Business Planning add-on on
continuity of the area based incentives SAP S/4HANA

Business Strategy and Planning • Evaluation of continuity of key • SAP S/4HANA


manufacturing and other facilities • SAP Integrated Business Planning -
based on availability of location based Sales and Operations Planning
tax arbitrage • SAP Integrated Business Planning -
• Costing and Pricing Models Inventory Planning
incorporating GST • SAP Integrated Business Planning
- Demand
• SAP Integrated Business Planning
- Supply
• SAP APO + Advance Simulation
• SAP Business Planning add-on on
SAP S/4HANA

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The Alpha and the Omega of GST

Business Area/Function/ Key sub activities that will be SAP Solutions


Process impacted
Record to Report (R2R)/Accounting/ • Revision of Chart of the Accounts • SAP GRC – Access Control,
Financial Reporting • Mapping of the revised business Process Control
process to G/L and R2R steps • SAP Master Data Governance
• Identification/Recording and
Reporting of the Input Tax Credit
• Recording and accounting of the tax
liability
• Vendor/Customer Master
management
• Assessment process
• Risks emanating of new tax structure

Treasury/Finance/CFO’s Office • Working capital management • SAP S/4HANA


• Review of availment and utilisation of • SAP Financial Closing Cockpit
the input tax credit • SAP Disclosure & Notes
Management
• SAP Cash Management on SAP
S/4HANA
• SAP Profitability and Cost
Management
• SAP Net Margin Analysis on SAP
S/4HANA
• SAP Business Planning add-ons
• SAP Receivables Management
• SAP Shared Services Framework

Information Technology/Change • Change, Integration and Transition • TAXINN with GST Compliance
Management/Transition Team management • SAP Shared Services Framework
• Systems set up for compliance
according to the GSTN requirements
• Automation of business processes to
facilitate smooth transition and
reporting
• Engagement with a trusted partner for
implementation

Human Resources • Evaluation of impact on the employee • SAP Master Data Governance
benefits offered by the company • SAP Shared Services Framework
• Evaluation of changes required in the
T&E process

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The Alpha and the Omega of GST

A number of new concepts have been introduced • Valuation of goods and services based on
by GST which is going to fundamentally change different pricing
the way business model operates including: • Hierarchy levels
• Supply rules • Many more macro and micro level
• Widening the coverage of transactions changes
• Flow of credit subjected to payment of
taxes by supplier The ability to quickly carry out required changes
• Consolidation of multiple taxes into a to the business strategy and processes at macro
single tax as well as micro level largely depends on
• Consumption based tax regime technology capabilities of the organization.

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The Alpha and the Omega of GST

Need to get GST ready

GST has widespread implications for businesses effect of taxes will come in and some benefit
in primarily two major areas, which are might be passed on to the channel and/or to the
Compliances and Business Operations: consumer. Price changes and competitor
actions will have an integrated and direct
COMPLIANCE correlation to volume/market share with an
With GST subsuming multiple Central and State effect across India, making real time pricing
taxes, uniform tax regime will drive restructuring strategies a key part of strategic
of pricing and dealer margins. Pass through decision making.

GST impacted processes Implications

• TAXINJ to TAXINN Tax calculations


• GST Configuration • Tax Procedure Migration
• Vendor and Customer Master Data • Tax Percentage determination
• Utilization of Input tax credit • Destination based access sequences
• Document Numbering
• Transition Provisions Process review
• Cutover • Stock Transfers and Transfer Pricing
• Reporting / GSTN • Input Credit Utilization
• Vendor and Customer Invoice Reconciliation

Tax Registers and Reporting


Actions needed • Tax Declarations – Returns, Challans, etc

• Migration from TAXINJ to TAXINN


• Stock Transfer and Transfer Pricing SAP Solutions
• Establish Automated Vendor and Customer Reconciliation
• Establish Tax Reporting and Declaration Framework • TAXINN with GST Compliance

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The Alpha and the Omega of GST

GST Compliance with TAXINN

Key impact areas Scope Description


Tax Registration Define GST Registration levels Tax registration process at different levels
such as Central and State levels.

Master Data Maintenance Business Partner Tax Data, GST Maintenance of data of various
Accounts intermediaries, transactions, tax credits etc.

Tax Configuration & Configure Tax and Pricing procedures; Defining tax rates, calculation of taxes on
Computation Tax computation; TAXINN different products and services based on their
valuations, pricing of the products etc.

Document Numbering Outgoing Invoice Numbering Creating and keeping track of invoice
documents based on unique numbering
system

Business Process Localization Extend Support to currently localized Helps in integration of existing localized
Business Processes business processes with overall business
operations

GST Tax Postings GST Input and Output Tax postings Helps in identifying input and output tax in the
process of sale of goods and services

Utilization Input tax credit utilization against Keeping track of input tax credit set-offs
payable for GST Taxes

Master Data Maintenance Tax Register Helps in maintaining tax master data, process
controls, identification of tax dues, filing of
periodic returns etc.

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The Alpha and the Omega of GST

BUSINESS OPERATIONS
Organizations are seeking practical solutions to
number of questions and challenges related to
key business operations that includes:

Key Business Challenges Solution through SAP S/4HANA


Where do we stand today (As-Is) and how the road map Business Analysis team to quickly evaluate As–is status and draw
to GST looks like? an implementation plan to achieve the To-Be status effectively and
efficiently

What are the specifics that will impact the way Organize high volume of unstructured data and gain significant
organization carry out and record business efficiency in transaction recording and processing
transactions?

How the new GST regime is going to impact the working Accelerated Transaction processing and analytical capabilities of
capital management decisions, especially the process SAP S/4HANA Platform enable business to get significant real
of recording, availing and utilizing of tax credits? time insights

How to consolidate the erstwhile Tax structure in the High level of business process, structures and database integration
current ERP and other supporting business applications capabilities. SAP S/4HANA removes the burden of maintaining
to align with the new structure? separate legacy systems and fragmented data, so you can run live
and make better business decisions in the new digital economy.

What are the fundamental changes required in the Re-imagine business processes and models with SAP S/4HANA
Procurement to Payment (P2P), Order to Cash (O2C),
Record to Report (R2R) and other key business
process?

What are the key compliance requirements and what Process, analyse high volume of structured and unstructured data
plan is in place to ensure those requirements are met? to ensure robust reporting and compliance

What will be the potential impact on complex pricing Perform text, predictive, spatial, graph, streaming, and series
arrangements, composite contracts, multi-location processing against large volumes of data in-memory to deliver
deliveries, multi-party transactions? unprecedented insight using a single platform

What are the documentation requirements at each step Easy transition through management of current data and future
of business transaction and what systems and data requirements
processes are in place to help organizations to sail
through smoothly?

How do we maintain control across all levels of SAP Transaction controls and enhance process and data integrity
transactions and ensure timely and accurate reporting levels
to various stakeholders?

.…and many more such implementation challenges can be easily transitioned through SAP S/4HANA.

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The Alpha and the Omega of GST

The key to success lies in formation of a detailed • Technology tool to smoothly sail through the
execution plan with an expert understanding of GST and emerge as a leading player post GST
impact of GST across people, process and • Ability to quickly make decisions on pricing,
technology. supply chain, working capital management,
compliance
WHO WILL SUCCEED THROUGH THE GST? • Ensure robust internal and external reporting
While there will be implementation challenges, with sound internal controls
the business that quickly identifies and prepares • Ability to analyse business situations for
for the changes, will be gaining a significant and multi-dimension
sustainable competitive advantage, much ahead • Ability to seamlessly integrate business
of the industry peers. To do so, businesses applications with vendors, customers,
needs a solid implementation plan and a trusted bankers, regulators and other key
technology implementation partner. stakeholders
• Last but not the least, maintaining uniform
WHAT DO YOU NEED TO SUCCEED? database structure, ensuring integrity of the
• Ability to view and understand the Macro and current business information and real time
Micro level impact of GST on your business information availability
• Detailed technology enabled implementation
plan

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The Alpha and the Omega of GST

SAP S/4HANA – Your trusted partner in the journey

All of the above needs are part of the inbuilt procedure for maximizing the benefit arising
capabilities of SAP S/4HANA to accelerate the out of GST implementation
journey of GST Implementation by businesses. • Efficient management of the dual structure
As a cutting edge technology pioneer SAP across different states, product segments
S/4HANA can provide a comprehensive and verticals
business solution through – • Aggregation of data for management
reporting, evaluation and scenario analysis
• Establishment of common infrastructure as for facilitating quick decision making
per the requirements of GST • Identification of overlaps between the
• Development of efficient and effective existing indirect tax system and the GST
interfaces with the business and tax regime and adequately incorporating insights
administration ensuring smooth flow of into the transition plan for timely migration
business data for tax reporting purpose to GST
• Facilitating, implementing and setting the
best standards across industries and SAP S/4HANA accelerates your journey through
business segments flexible data acquisition tools, integrating the
• Development of a business aligned data from wide variety of sources, making
ecosystem for seamless transition from the available the up-to-date insights, facilitating a
current indirect tax system to much awaited predictive analytics capability that makes the
GST regime implementation process faster, and better.
• Ensuring transition to new GST regime
through nil or minimal disruption to existing SAP S/4HANA is well equipped to ensure
business process, workflow and data smooth sailing through the GST for India Inc. The
management system technology solution will enable organizations
• Condition and rule based tax application through transition across various stages. A brief
view is depicted as under –

Stage SAP S/4HANA Capabilities and Functionalities


Determination of the applicability of the taxes • Definition and accurate configuration of the rules for
determination of applicable taxes based on target/
destination/receipt of goods and services
• Adequacy of the master data and tagging of data to
transactions based on the defined rules
• Maintenance of tax masters
• Allocations and assignment of the tax masters to list
comprehensive business transactions and scenarios

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The Alpha and the Omega of GST

Stage SAP S/4HANA Capabilities and Functionalities


Capturing taxable events • Capturing taxable events through end to end supply chain
(supply of goods and services)
• Tracing the movement of the goods across the chain and taxes
applicable thereof
• Management of credits/debits and the exceptional
transactions
• Service management

Computation and recording of taxes • Formulation and maintenance of process logic for computing
the taxes
• Booking the tax through end to end sequence
• Recording of taxes in the financial set of books

Tax returns and payments • Summarising and reporting of the tax liability – duly linked to
each tax authority and category of taxes (composite yet
segregated for set off order)
• Determination of the tax payment requirement
• Generation of the information for filing of various tax returns at
set frequency

Compliance management • Ensuring compliance management through the tax


management process
• Generation of the compliance reports
• Generation of monitoring reports

Business reporting and management decision • Generation of multi-layer and multi-dimensional reports
making • Reporting of business insights
• Management information system for macro and micro level
decision making
• Linkage to prospective business transactions

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The Alpha and the Omega of GST

MASTER DATA AND TRANSACTIONAL In addition to the master data, transaction data
TRANSITION CONSIDERATIONS also needs to be reviewed for transition
Organization needs to consider some of the requirements –
following key master data transition
requirements immediately, which is expected • Open purchase orders (partial as well as
to include – no-delivery)
• Long term rate contracts
• GST Registration information of business • Long term quantity contracts
partners (suppliers, legal entities, • Unexecuted, unbilled and unpaid portion of
manufacturing locations, service centres, the service and maintenance contracts
depot, point of sales etc.) • GR/IR (Goods received but pending for
• Item master data invoices/tax documentation)
• Exemption status of goods and services as • Open pricing and customer quotations
well as upstream and downstream business • Unaccounted and unsettled debit and credit
partners notes
• Tax codes • Unreturned material sent for job work and
• Condition based tax masters many more…
• Pricing masters and many more

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The Alpha and the Omega of GST

Fasten your seat belts

With SAP S/4HANA the businesses now will be and distribution facilities in multiple
able to perform tax impact analysis from various locations?
management decision making perspective which • Is there any opportunity to consolidate the
may include: upstream and downstream operations of the
organization to gain economies?
• Re-looking at product positioning and pricing • Does the organization require warehouses at
arrangements all distribution/consumption locations?
• Identification of opportunities for
consolidation of locations across business TAX RATES
verticals While the CGST rates are expected to be uniform
• Analyse patterns of procurement and evolve across the country, the GST rates may vary as
completely new procurement strategy the respective States will be able to set the rates
• Assess and re-define the customer segments within the bands recommended by the GST
• Explore impact on various key metrics in council above the floor rates. Though in a narrow
simulated post GST business environment range, the composite GST rate is expected to
vary from state to state.
RE-EVALUATION AND RE-CALIBRATION OF THE
BUSINESS MODEL Corporate thus needs to ensure readiness to
With seamless flow of taxes paid on inputs for work amongst the state wise difference in the tax
settlement of taxes collected on output in a rates.
unified regime, the location of production or sale
becomes irrelevant. Manufacturing and SAP S/4HANA has the ability to support
consumption location structure, based on business through such complex tax
current indirect tax regime, needs a thorough administration regime, and it is one stop solution
relook. Business Heads needs to evaluate the to sail through the journey from current indirect
model based on the value and volume of tax regime to GST.
business transactions, the continual relevance of
existing locational arbitrage from taxation as well THRESHOLD LIMITS
as profitability perspective. Companies need to ensure robust monitoring
mechanism on the vendor thresholds of the
Companies need a dependable technology business to review whether the vendor or service
solution which can provide insights into how the provides falls under the ambit of GST.
key business performance indicator gets Companies thus need to establish a robust
impacted post GST implementation. technology solution for increased level of
monitoring, which SAP S/4HANA aptly provides.
Some of the key questions before the
Management are-

• Do we need to operate the manufacturing

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The Alpha and the Omega of GST

PRODUCT PRICING STRATEGIES strategies a key part of strategic decision making.


Post GST environment, number of companies competition. With the price of the products being
are expected to witness increased levels of price uniform across the states but the input cost
competition. With the price of the products being varying from state to state, the companies will
uniform across the states but the input cost have to work on product pricing strategy which
varying from state to state, the companies will will be driven by margin concerns.
have to work on product pricing strategy which
will be driven by margin concerns. With GST subsuming multiple central and state
taxes, uniform tax regime will drive restructuring
With GST subsuming multiple central and state of pricing and dealer margins. Pass through
taxes, uniform tax regime will drive restructuring effect of taxes will come in and some benefit
of pricing and dealer margins. Pass through might be passed on to the channel and/or to the
effect of taxes will come in and some benefit consumer. Price changes and competitor actions
might be passed on to the channel and/or to the will have an integrated and direct correlation to
consumer. Price changes and competitor volume/market share with an effect across India,
actions will have an integrated and direct making real time pricing strategies a key part of
correlation to volume/market share with an strategic decision making.
effect across India, making real time pricing

Pre GST Post GST

Price Points – Backward Calculation Price Points – Backward Calculation

Distributor Margins Distributor Margins

Distributors Distributors

Suppliers Consumer Suppliers Consumer

Manufacturing/ Manufacturing/
Service Service

Complete Pass-through

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The Alpha and the Omega of GST

Potential impact of GST on pricing of goods and


services and its implications on business are as
follows:

GST impact Implications

Pricing Analysis across value chain Channel Incentives and Margins


• Calculation of GST impacts on selling price keeping dealer • Dealer/ Distributor incentives
margins and consumer price neutral • Tax benefits and working capital implications
• Impact on selling price keeping dealer margins and dealer to channel
price constant • Review process and Benchmarks
• Impact on volume with a consumer price change
FG pricing to end consumer
• Impact on dealer margins with a consumer price change
• New price points and elasticity
• Geographical analysis on volume and price changes
• Volume and Market Share implications
• Recalibrate Pricing and develop what-ifs with system
based data points Service Pricing
• Support and Maintenance Service pricing
Scenario Analysis
SAP Solutions
• Introduce and develop pricing volume scenarios.
• Dealer margin and selling price calculations with different • SAP Business Planning add-on on
scenarios
SAP S/4HANA
• Impact on Company margins with constant dealer margins
• SAP Predictive Analytics

SAP S/4HANA has in-built capabilities to through effect of taxes will come in and some
generate and distribute business intelligence to benefit might be accrued by renegotiating prices
single as well as all the decision makers in the and delivery mechanism from vendors. This will
organization, which helps them to formulate have a direct impact on final products and
right response to changing business situations. services cost.

PRODUCT AND SERVICES COSTING


With GST subsuming multiple Central and State
taxes, uniform tax regime will drive change in
raw material and service procurement cost. Pass

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The Alpha and the Omega of GST

GST impacted processes Implications

Product and Service Costing Product Cost


• Calculation of GST impacts on procurement prices for raw • Raw material sourcing can change
materials and services • Impact on current tax benefits
• Impact of vendor renegotiations • Review capacities and utilization reducing fixed cost
• Impact analysis by manufacturing or service locations
Services Cost
• Impact analysis with capacity utilization and change in
built capacities • Impact on operations that are sub-contracted
• Forecasting and simulation of product and service costs • Review outsourced services

Scenario Analysis SAP Solutions


• GST impact on cost of products and services • SAP Profitability and Cost Management
• Continuous analysis of procurement cost of goods
and services

Companies need to evaluate the allocation of VALUATION


capital resources on the basis of criteria like Under the GST regime the taxable value is
economies of scale, access to market, adequacy “Transaction Value”. The valuation concept is
of infrastructure, centralisation of production expected to create number of challenges for levy
and other key facilities in various states inter alia and computation of taxes especially related to
instead of decisions made on the basis of complex business transactions like captive
taxation laws. consumptions, captive supplies, and transfer of
services like leasing of capital equipment for
SAP S/4HANA enables the business to review certain period of time. Businesses need to be
capital allocation decisions through analysis of ready with information to adequately justify the
high volume of business data and facilitation of transaction value and also assess the impact
review through scenario evaluation. where there is a possibility of transaction value
being significantly different from the invoice
Companies will also need to review the value.
procurement strategies and needs to have
access to robust information for cost effective The valuation rules as and when released, the
purchasing. businesses also needs to ensure readiness.
SAP S/4HANA with its ability to provide data
Availability of vendor masters with all the and share information at multiple levels,
necessary data, ability to filter, summarise, valuation for the purpose of GST is expected to
compare and explore insightful information is be aligned thereof.
one of the key solutions offered by SAP
S/4HANA that will guide the purchasing
strategies of companies.

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The Alpha and the Omega of GST

MARGIN ANALYSIS forecasted or simulated on revenues and costs,


With GST impacting both pricing strategies and margins will also need to be analyzed and
product or services costs, it has a direct impact optimized as per the new GST regime.
on the margins as well. Given the changes

GST impacted processes Implications

Product and Services Margin Margins


• Calculation of GST impact on margins • Redefined margins may result in opportunity to
• Impact of changes in pricing and costing maximize profits
• Impact analysis by various dimensions like region, state, • Some Product and Customer viabilities might
manufacturing location, etc change dramatically
• Optimization of margins through what-if scenario analysis • Increased volumes can impact absolute margins

Scenario Analysis SAP Solutions

• GST impact on margins of products and services • SAP Business Planning add-on
• Continuous margin analysis and comparison between on SAP S/4HANA
plan and actual • SAP Net Margin Analysis on HANA

FINANCE OPERATIONS is a need to have a very strong invoice matching


In the GST environment, organizations need to process as part of the SOP. Since if they get
have time-line based closing process with missed out due to dispute or leakages
centrally managed SOP; as the ITC refunds and organizations would lose ITC at the end of the
the resultant cash flow is a pan India affect and year which will have a direct impact on the P&L.
not a location based exercise any longer. This holds true for the customer side matching
Organizations will lose taking the ITC which in process and disputes as well. Also the
turn will impact the cash flow immediately. There reconciliation is expected to be at line item of
will be an impact on P&L if you don’t file the invoice.
reconciled returns at the year end. Hence, there

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The Alpha and the Omega of GST

GST impacted processes Implications

• Invoice reconciliation at line item wise • Compliance


• Financial Closing - Meet stringent filing deadlines
• GST filing on the GSTN network - Application of internal controls
• Centralized Tax filing will stream line closing process
with transparency

Scenario Analysis SAP Solutions

• Time taken to resolve disputes in invoices • SAP S/4HANA


• Time taken for filing Tax returns under GST regime • SAP Financial Closing Cockpit
• Time taken to close financial books • SAP Receivables Management
• SAP Disclosure & Notes Management

WORKING CAPITAL MANAGEMENT Working capital requirement will undergo


Effective and efficient deployment of working significant changes in the new GST regime
capital is a key priority for the CFO’s office in which has the following structure:
volatile business environment.

IGST

Integrated GST (IGST) CGST

SGST

CGST
Central GST (CGST)
IGST

SGST
State GST (SGST)
IGST

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The Alpha and the Omega of GST

In the advent of GST on account of time gap transfer, IGST has to be paid in full in the
between Goods Received Note (GRN) and Sale of dispatching State which is available as credit in the
Goods (Delivery/Billing document) there would be destination State at the time of sale. This has the
a need to calculate the GST payable and Input Tax impact of blocking of working capital from the time
Credit (ITC) available. In case of inter-state stock of dispatch till the sale in the destination State.

GST impacted processes Implications

• Cash Outflow Management on account of GST payable • Better forecasting of Cash flow for the enterprise
• Working Capital blockage due to time gap in GST payable • Better visibility of blocked working capital
in dispatching state and ITC availment in source state at
the time of sale

Scenario Analysis SAP Solutions

• Simulation of the ITC/GST using the schedule line delivery • SAP S4HANA
due dates for open PO/SO • SAP Cash Management on SAP S/4HANA
• By applying FIFO concept in the destination state, and
average time to actual sale, projection of working capital
block for a particular amount of time can be done
• Analysis of goods movement and the impact of GST and
ITC for : Own movements, consignment movements,
Agent movement etc

SAP S/4HANA with its real time computing and need for e.g. to maintain Material master – HSN
reporting capabilities; renders CFO’s desk with number for GST rate determination; Vendor
reliable information on the Input Tax Credit (ITC) master – update of GST number along with various
available at any given point of time for effective BIN; Customer master – update of GST number
and efficient use of working capital. along with various BIN; Depo – update of GST
number along with relevant BIN. This is best
GOVERNANCE FRAMEWORK FOR STANDARD managed if there is system based governance
OPERATING PROCEDURES (SOP) framework for various SOP implementation.
IMPLEMENTATION Following are the various processes impacted by
In the GST environment, there will be a need to use GST and their implications.
centralized SOP’s for various Master data in the
system; tax configurations would need to be
centrally monitored and managed. There will be a

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The Alpha and the Omega of GST

GST impacted processes Implications

• Master Data Création and Changes • Streamlining of Master Data, Org. Structure
• Org Structure changes in the system creation, change
• Centralised Tax Configuration • Centralization of Tax compliance framework
• Contracts Management • Standard Operating procedure for Organization
• Data Cleansing structure changes
• Authorization Matrix • Centralization of Contract management
• Automated Testing of processes before moving to production • Delegation of Authority matrix based on SOP’s
• Error free production environment due to automation
of Testing as there will be Pan India impact
Scenario Analysis

• Number of Master data created in a period SAP Solutions


• Time taken to roll out any new changes in regulatory
and tax rules • SAP GRC – Access Control, Process Control
• Time taken to setup organization structure dynamically • SAP Master Data Governance
as and when needed • SAP TAO
• Time taken to move a new development from quality to
production without errors

Organizations need to correctly align all taxes MANAGING TAX COMPLIANCES


that are related to inward and outward Companies will need to ensure robust
movement of goods and services in the ERP. preparation and be ready for increased level of
Further business processes which includes tax compliances under the GST regime. The key
inter-state stock transfers, outward and inward areas include-
movement of sub-contracted/job work,
movement of goods for repairs and • Migration of registrations
maintenances needs to be thoroughly evaluated. • Reporting of the inputs tax credit balance
The business need to completely realign the • Change in the format of purchase and sales
process followed for recording and utilisation of documentation like invoice, waybills, packing
the input tax credit as well as settlement of the list, challans etc.
tax liability in alignment with the schedule • Implementation of the changes in rates in the
proposed under the GST regime. tax masters
• Ensuring right classification of goods and
SAP S/4HANA offers built in business process services
alignment capabilities to ever changing • Framing the manner of computation of value
regulatory environment. and assessment of GST
• Timely submission of returns
• Do away with the statutory forms and
records post GST implementation
• Evolve new set of documents for records

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The Alpha and the Omega of GST

SAP S/4HANA is well equipped to facilitate • Chart of Accounts


compliance on various aspects under the GST • Material Master
regime. • Vendor Master
• Customer Master
TAX CONFIGURATIONS • Price Master
Business needs to ensure that the enterprise • Location Master
systems are fully equipped to incorporate the • Terms of trade
proposed GST framework in total. Appropriate
evaluation studies to be performed to ensure RETURNS
that the ERP is not only ready to incorporate the Periodically the business needs to generate
short term changes, but also scalable and ready voluminous amount of information for
to absorb new rules as and when those are preparation of the different set of returns. The
published and made effective under the GST accuracy of the data upload in the return will
regime. SAP S/4HANA solution is scalable and decide the ability of the enterprise to assess the
adaptable to the future changes expected in the available input tax credit and utilisation, thus
Indian business and regulatory environment. directly impacting the working capital
management.
Organizations need to ensure that the key
master data sources across the business are
appropriately configured to meet the
requirements of GST. Some of the key master
will include:

Outward Supply Inward Supply Consolidated


Monthly Monthly
Returns Annual
Matching of data by GSTN with suppliers and customers
Miscellaneous

Report of available input


credit (Short/Excess)

Working Capital
Management

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The Alpha and the Omega of GST

There is just 5 days window available for filing of OPEN TRANSACTIONS ON THE DATE OF
each of the outward, inward and monthly MIGRATION TO GST REGIME
consolidated return. SAP S/4HANA with Any industry’s biggest nightmare will be to seek
capabilities to process high volume of business solution for management of open transactions
data and generate accurate reports will provide a like
relief to the management. It also has robust data
processing and matching system for generation • Open purchase orders
and upload of frequent returns as required under • Partially executed sales order
the GST Regime. • Goods in transit
• Partially executed contracts
MANAGEMENT OF INTERFACES • Work in process
As the businesses have evolved, it often deploys • Material received pending for documentation
different systems and application for distinct • Purchase and sales return
purposes of the business unit, vertical, function • Material lying at job worker premises
or department. While the business data is spread • Material held on behalf of customer/principal
out and linked through various interfaces • Many other smaller or large pending issues
operated through different platforms, it is going as on the date of migration.
to be a very challenging task for the businesses
to integrate the data for management reporting, SAP S/4HANA provide end to end transition of
evaluation of business scenarios and tax existing, new, open transactions without any
compliance management. hassles to the operations management team.

SAP S/4HANA offers seamless integration


capabilities with various types of business
applications and tools, often without any need
for development of any interface.

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The Alpha and the Omega of GST

SHARED SERVICES
The following chart shows the different
processes typically included in Shared Services
which will be impacted because of GST
implementation:

General Accounting

Customer Service
HR/Payroll
Call Centers

ssc

Finance
Contract Management
(AR/AP/Billing)

IT Help Desk

With the implementation of GST, the tax filing is services environment becomes extremely
expected to be standardized across India via the feasible and simple. Hence, there are definite
GST network. Due to this standardization the benefits for organizations to setup Shared
shared services team can facilitate the local Services units to facilitate Tax filings, Invoice
units in tax filing procedures. Also, due to automation and contract management process
standardization of invoice formats, the as part of their business transformation exercise.
automation of invoice processing in a shared

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The Alpha and the Omega of GST

GST impacted processes Implications

• Invoice Automation • Faster payment processing for vendors


• Tax Compliance and customers
• Contract Management • Better Dispute resolutions with vendors
and customers
• Streamlining of Tax compliance process wherein
the central team can facilitate local business units in
Scenario Analysis GST filings
• Efficient Contract management due to central
• Analysis of Number of open invoices, shared services.
un-accounted/un-reconciled invoices for input tax
credit with vendors
SAP Solutions
• Status of Tax filings and total credit availed/outstanding
over a period
• SAP Shared Services Framework

SUPPLY CHAIN NETWORK


With GST subsuming multiple Central and State
taxes, a uniform tax regime will drive
restructuring of the supply chain network. The
distortions imposed by the taxation will go away
and the logistics networks will be designed to
support the speed and efficiency required for
that particular product.

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The Alpha and the Omega of GST

GST impacted processes Implications

INTEGRATED NETWORK DESIGN • Total supply chain costs will be reduced


Logistics network design considerations such as no. of depots, number of (procurement + inbound logistics + RM inventory +
echelons, linking markets to the depots, depots to RDCs, RDCs to the plants
will be determined based on required response times and the total supply production + outbound logistics + FG inventory +
chain costs excess inventory cost + loss of sale + plant set up
costs + warehouse setup costs)
FG NETWORK DESIGN
• Ability to reach the markets fast (information lead
Considerations for opening an FG depot will be guided by the consider-
ations of acceptable supply lead times and demand volumes of the time + physical transportation time + waiting time)
markets instead of tax considerations. In certain logistics chains it can • The sales and distribution processes undergo a
lead to consolidation of FG depots change in terms of scope and scale
RM NETWORK DESIGN
Sourcing done locally for tax reasons will go away. Best supply
source will be determined from the point of view of product quality,
price and service considerations
MANUFACTURING NETWORK (PLANTS + INTERPLANTS + SAP Solutions
CONTRACT MANUFACTURING)
Sourcing done locally for tax reasons will go away. Best supply • SAP S/4HANA
source will be determined from the point of view of product quality,
price and service considerations • SAP Integrated Business Planning - Sales and
Operations Planning
• SAP Integrated Business Planning - Inventory
Scenario Analysis Planning
• SAP Integrated Business Planning - Supply
• Simulating depot locations and depot-market linkages on • SAP APO + Advance Simulation
the total supply chain costs, lead times and the inventory

SALES AND OPERATIONS PLANNING production and sales will be reduced indicating
GST impact on the sourcing, manufacturing and increased agility because of less obsolete
distribution will drive consolidation. This shift inventory and increased visibility of sales
from a more local and loosely integrated supply revenue. This will reduce the working capital
chain towards pan India and integrated supply requirements for the organization.
chain would need strong demand side and
supply side alignment. A disruption or mismatch
will have a much larger implication to demand
satisfaction or cost against a local impact today.
This makes the sales and operations planning
strategic process driving supply chains.

Due to GST and aligned processes of the


implementation alongwith technological changes
in the organization, future uncertainties about

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The Alpha and the Omega of GST

Before
Plan

Obsolete Inventory Lost Sales


Probability

Supply Demand Future Future Demand Supply


Variability Variability Uncertainty Uncertainty Variability Variability

Assets

Inventory

After

Plan

Obsolete Inventory Lost Sales


Probability

Increased Agility Increased Visibility

New Target
Service Level 99.99 %
Supply Demand Demand Supply
Variability Variability Variability Variability

Assets

Inventory

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The Alpha and the Omega of GST

Potential impact on the different processes of


sales and operational planning along with its
implications are given as below:

GST impacted processes Implications

Demand and Supply Matching Mature Program for Sales and Operations Planning
• Forecast, Rollups and Collaboration • Supply Chain decisions taking center stage for
• Frequency of review operational efficiencies
• Framework for Cross Organizational S&OP.
Scenario Analysis
• Flexible Scenario building/Hypothesis and
• Revenue Impact what - if analysis
SOP decisions
• Cost impact what - if analysis
Inclusion of Extended Supply Chain Partners into
• Buy vs Make scenarios Sales & Operations Planning
KPI Framework and Benchmarks • Integrated Plans and Collaboration
• Proactive lead indicators • SLA’s and monitoring
• Comprehensive historical and current SCM performance

SAP Solutions
Scenario Analysis
• SAP Integrated Business Planning - Sales and
• Revenue Impact Analysis, Demand and Supply Decisions Operations Planning
• Cost Impact Analysis, Demand and Supply Decisions • SAP Integrated Business Planning - Demand
• SAP Integrated Business Planning - Supply
• SAP APO

INVENTORY MANAGEMENT Strategic inventory investment = right coverage


Current tax regime caused sub-optimal inven- for a product at the right place.
tory decisions guided more about tax incidence Potential impact on the different processes of
minimization. Post-GST, strategic inventory Inventory Management alongwith its
placement is possible achieving more customer implications are given as follows:
service level for the same inventory investment
or lower inventory investment for the same
service level.

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The Alpha and the Omega of GST

GST impacted processes Implications

• Inventory norms at each node of the supply chain


How much inventory to maintain? • Raw materials @ plants, FG @ plant/mother
• Consolidation of the warehouses - > Larger shipments -> warehouse/depots
Higher cycle stock • Cost of carrying the inventory - different at each level.
• Larger consolidated volumes -> Frequent replenishment -> Impacts where to keep the safety stocks.
Lower cycle stock • Service levels - inventory investments determine the
• Consolidated demand -> Lower variability at the warehouse -> service levels achieved. Wrong inventory at a place
Reduced safety stock can bring down service levels in spite of very high
overall inventory investments.
Where to keep the inventory?
• Plant -> Mother warehouse -> Depots -> Distributors
• What is the variability at each consolidation level and how many
days safety stock should be maintained at each of the levels?
SAP Solutions
Scenario Analysis • SAP Integrated Business Planning - Inventory
Planning
• Impact of changes to inventory drivers on the overall
supply chain costs and service levels

OTHER ISSUES AND CHALLENGES • Accounting and claiming input tax credit will
• Basic and necessary products like petroleum, remain a challenge in the post GST business
electricity will be kept out of GST. environment.

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The Alpha and the Omega of GST

Industry specific implications of GST

Industry Upside Limitations


Retail/E-commerce/Consumer Goods • Expected reduction in the end to end • Concern related to continuity of
cost of supply chain area based incentives
• Elimination of the cascading effect of • Higher incidence of taxes on sin/
the multi-level and layered taxes demerit goods
• Freed working capital • Higher incidence of taxes on certain
• Margin expansion of the company and consumer durables
channel partners • Increased administrative and
• Simplified taxation process compliance work due to E-Com
companies responsibility of
collecting Taxes
• Fundamental challenges related to
classification of products into goods
or services for E-commerce
companies
• Local registration requirements
(Every state)

Telecom • Expected reduction in the prices of • Fuel products/key inputs for


handsets running network/infrastructure out
• Savings in the warehousing and of the GST regime
logistics costs • Increase in rates of call, data
services on account of higher tax
incidence

Transportation/Warehousing/ • Increased level of consolidation in the • Fuel products out of GST regime
Logistics industry poses challenges for claiming any
• Change over and lean business model input tax credit

Professional Services • Reduced costs on account of • Higher incidence of tax on services


availability of input credit across • Impact of reduced discretionary
goods and services inputs spend
• Loss of centralized registration and
administration - need of registration
in multiple states on account of
supply of services to entities
present in those states

Chemicals and Pharmaceuticals • Gain from supply chain efficiencies • Dependency of investments on
• Reduced costs across value chain on continuity of the area based
account of elimination of the incentives
cascading effect of taxes • Application of GST on the basis of
transaction value instead of MRP
• Channel partner margin shrinkage

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Industry Upside Limitations


• Lack of clarity on grandfathering of
the input credit, continuity of
exemption on life saving drugs and
taxability of free supplies

Metals and Mining • Gain from supply chain efficiencies • Marginal increase in the tax
• Reduction in costs across value chain incidence
on account of elimination of the
cascading effect of taxes

Industrial Machinery and Components • Expected reduction in the litigation on • Lack of clarity on bundling of goods
account of issues related to taxability and services
• Gain from supply chain efficiencies
• Reduced costs across value chain on
account of elimination of the
cascading effect of taxes

Discrete Manufacturing and • Reduction and rationalization of end to • Expected reduction in on-road
Automobile end cost of supply chain prices of automobiles
• Elimination of cascading effect across • Lack of clarity on withdrawal of area
multiple levels in the value chain based tax incentives
• Elimination of taxes like NCCD, Auto
Cess etc.
• Flexibility for the industry to build
supply chains
• Seamless flow of input credit
• Margin expansion for the channel
partners

RETAIL/E-COMMERCE/FMCG Companies like Hindustan Unilever and Hero group have


witnessed increased level of profits over last 5-7 years,
Phasing out of Area Based Tax incentives duly reflected in respective market capitalisation. In
Companies having manufacturing sites in case the exemption is not extended, the investments in
various states of North-East, Himachal Pradesh, Himachal Pradesh and Uttarakhand may get adversely
Jammu and Kashmir needs to re-evaluate the impacted leading to flight of capital to other states.
supply and distribution chain. Further there are
number of companies that are dependent on the
primary manufacturer in such locations and
engaged in peripheral activities like re-packing,
re-labelling, sorting, alteration, storage, cleaning
operations will be significantly impacted.

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Retail also expected that with rationalisation of the


GST is expected to make a positive impact on warehousing and distribution model, certain
Retail and Consumer, personal care space. The tangible gains will follow.
overall warehousing and logistics costs are
expected to reduce significantly in the GST On the flip side, goods which can be termed as
regime. However, the key benefits may get “sin or demerit” like aerated beverages or
transferred primarily to the manufacturers and tobacco based products will be subjected to the
to the end consumers. The wholesalers, highest tax rates.
distributors, retailers’ working capital and
administration costs are expected to increase on It is also expected that majority of the consumer
account of requirement of payment of tax by durable will be taxed at the highest rate of 28%
suppliers for the following entity in the value and certain items to be taxed at 18%. Currently,
chain to claim input tax credit. SAP S/4HANA number of goods falling under the consumer
enables businesses to effectively and efficiently durable segment are being taxed anywhere from
manage the tax compliance, payments and 26 % to 31%, depending upon the nature,
return processes and will also help them in features and application. Technology products
freeing up of the working capital requirements. may see certain rise in price as it is expected that
the manufacturers may pass on additional
Consumer Goods burden to the consumer on account of marginal
Availability of input credit on number of services increase in the incidence of tax. The consumer
availed by Distribution channels e.g. rental/ durables sector is laden with high levels of
operating expenditure will help the channel inventory across the end to end supply chain as
partners to increase the margin. The ability to well as enormous volumes of inter-state
identify and categorise the nature of expenditure transport of such products. The GST regime is
on which the input credit needs to be availed expected to simplify the taxation aspects and
depends on appropriate configuration of the the ultimate benefits will be enjoyed by the
business process through use of robust consumer. While it is expected that the sector
technology solution. will have positive impact, the exact benefit will be
evaluated only after understanding the
SAP S/4HANA enables accurate configuration of classification of the durable products and tax
the business process to effectively manage the rates to be applied.
recording and utilisation of the input credit
through the value chain. SAP S/4HANA is completely equipped with
management of multiple SKUs of products
It is expected that the logistics and through end to end supply chain with dynamic
transportation costs through multi levels of application of the tax structure to transactions.
distribution would reduce translating into gains Organization will be able to decide the inventory
for the manufacturers of consumer goods. It is management strategies and evaluate the
implications of taxes under various categories of

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The Alpha and the Omega of GST

consumer products effectively and efficiently. transactions have evolved tremendously,


The current issue of tax leakages thus also will be however indirect tax authorities are yet to catch
addressed by the technology solutions. up with the changing industry trends.

E-Commerce Inter-state movement of goods has also been


It is fairly acknowledged, that it is not the one of the key challenges for e-commerce
e-commerce companies but the seller of product companies. The documentation requirements
would be liable to discharge the GST liability. including various statutory forms, way bills,
However, considering high volume of products permits create logistical and process challenges
traded through an e-commerce platform and for such companies. Additionally, local
with an objective to ensure tax compliance and registration requirements for State VAT have
safeguarding interest of the Revenue, also increased the burden of compliances.
E-commerce companies are required to collect/
deduct tax at a source. E-commerce companies have been subjected to
indirect tax, however, not been able to utilize the
Such tax deducted at source will be available as taxes paid as input credit for variety of reasons.
credit while discharging the tax liability on sales. The current tax law does not provide any clarity
Administration of online transactions, tax on indirect tax applicability to various types of
compliances related to suppliers needs a robust transactions such as payments and sourcing
technology platform which is capable of dealing through e-wallets, cash on deliver arrangements,
with nuances of the law and keeps the business usage of reward points, and adjustment of cash
model out of trouble. Tax deduction at source is back, utilization and redemption of gift vouchers,
expected to increase the documentation and direct deliveries. Lack of clarity on taxability of
administration costs. such transactions also creates a challenge for
e-commerce companies. Such issues have led to
E-commerce sector also has challenges in one of differential treatment and application of various
the fundamental aspects of indirect taxation i.e. taxes.
classification of the deliverables or offerings into
goods or services and thus lack of clarity on The companies need to watch out for more
taxes that will be applicable. clarity on application of GST and should be ready
with robust technological solution to quickly
Further, offering that doesn’t involve provision of adapt and respond to the requirement.
goods or services e.g. download of license,
applications, e-book, software, music etc. further SAP S/4HANA with its capabilities to manage
aggravates the challenges. State VAT and high volume of business data and management
Central Service tax authorities have been reporting, will serve as a business enabler and
perennially disputing on taxability of such help the e-commerce companies to sail through
transactions. Over a period of time digital the requirements of GST smoothly. It will help
the e-commerce companies to ensure proper

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records and matching of the inward supplies Cost of calls, data may increase as the rates for
with the outward supplies of the vendor and services are expected to increase. Also
accurate determination of the tax liability. The companies engaged into the telecom
cost of documentation and compliance will be infrastructure may lose the benefit of input tax
under control through implementation of credit on use of petroleum products/fuel, as
technology solution offered by SAP S/4HANA. those products are out of GST framework.

The evolving e-commerce industry in India is


managing high volume and value of shipments TRANSPORT/WAREHOUSE /LOGISTICS
across the country. The growth rates are beyond The current level of arbitrage possibilities that
all estimates. In the current taxation regime and exists because of differences of respective State
also on account of multiple views by State High VAT, Central Sales Tax will be eliminated
Courts, the e-commerce sector does not have completely. This also gives rise to the increased
clarity on indirect taxes applicability, collection level of consolidation in the supply chain
and responsibilities. Currently, the indirect tax industry.
laws have not been able to provide definitive
view or framework to constantly evolving The logistics sector is set for complete make-
business and revenue models in the sector. over of the business models and should make
itself ready to seize opportunities emerging out
On a positive note, GST will eliminate the of the GST. With SAP S/4HANA the businesses
cascading impact of taxes and further enhance can review impact of different business models
the ability of e-commerce companies to price on its key performance metric and formulate
the product competitively in the market. dynamic strategies to capture the evolving
market.
TELECOM
It is expected that the prices of mobile phone/ PROFESSIONAL SERVICES
handsets to reduce. The manufacturers are also On account of increased taxes on services, it is
expected to benefit from elimination of the expected that the services are going to be
cascading impact of the taxes and savings on expensive. Companies with significant level of
account of rationalisation of warehousing and revenue from services e.g. technology
logistics. The hand set manufacturers need not companies, consulting firms, professionals
require setting up the warehouses in each state across various domains, commercial leasing,
and will able to consolidate the inventory hotel management will be impacted on account
management post GST implementation. of higher incidence of tax on the ultimate
SAP S/4HANA enables efficient supply chain consumer. The customers discretionary
management with functionalities to maintain spending will be affected in the short term, till
superior control over the movement of products that time savings on account of lower taxes on
and efficient management in inventory. goods will be compensated by higher taxes on
services spend.

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Business needs to rethink their business models, Numbers of pharmaceutical companies are
evaluate the product mix, assess the enjoying area based tax incentives. The
contribution of revenue from services and grandfathering of such incentives in addition to
products and formulate customer contracts. supply chain efficiencies can be very
With ability to manage, administer and report encouraging to the sector; however, currently
high value and volume of data, SAP S/4HANA there is lack of clarity of continuity of such
will enable businesses to formulate robust incentives under the GST regime. Such factors
product structuring strategies. will have impact on the capital investment
decision of the companies. Continuity of the
GST is expected to have a positive impact on the incentives also impacts indirectly the cost of
costs side, a result of elimination of multiple medicines manufactured and finally the price
levies; however, on the flip side services incidence will be on the patients.
including technology services, with multi-
locational deliver centres may need to provide In case of generic medicines, the rate applicable
separate invoice to every customer. Cost of key currently and rate under GST is expected to be
technology equipment including electronics is the same. The key issue for pharmaceutical
expected to increase. industry is clarity on continuity of the exemption
for certain life-saving drugs and APIs which are
CHEMICALS AND PHARMA used as inputs in manufacturing of life saving
Chemical and Pharmaceutical companies will be drugs.
impacted on account of GST being applied on
transaction value and not on MRP reduced by The pharmaceutical industry is already struggling
abatement applicable. This move may increase with the high level of accumulated inputs credit
the incidence of tax and may shrink the margins balances primarily on account of high tax rates in
earned by the channel partners and thus the input goods and lower rate of tax on output.
manufacturer; the companies choose to remain Such scenarios will, impact the working capital
competitive on the pricing front. management adversely. Grandfathering or
refund of accumulated credit will be a big relief
The current structure of indirect taxes is 4% to for the industry. Further, the continuity of the
8% on API and Formulations, 2% CST, State Vat duty free movement of goods under the GST law
which is 5% and above and additional duty (input is also a breather for the industry in general.
creditable). The pharmaceutical sector is
expected to positively benefit from the GST as With elimination of the differences in interstate
long as the average rates remain under 15%. movement of the goods, the pharmaceutical
This sector is also likely to gain immensely from companies can now re-look at the redesigning of
the supply chain efficiencies that will be brought entire supply chain which will include decision on
in by GST. manufacturing facilities, C&F agents, stockists
and distributors, depots and retail points.

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The industry is looking at absolute clarity on DISCRETE MANUFACTURING AND AUTO


taxability of free supplies, assistance programs
run for patients, supplies of testing etc. Automobile
It is expected that the on road prices of vehicles
METAL AND MINING will reduce. Such reduced prices level may
The current indirect tax incidence on Metals and translate into increased volume for the
Mining companies is close to 10-11%. Further the automakers. This will also lead to significant
tax incidence on products like steel and expansion of the margins. GST is expected to
aluminium is in the range of 18-20% which is bring in rationalisation and reduction in cost of
expected to remain same or increase marginally doing business for automobile manufacturing
under the GST regime. companies. It will help the automotive
distributors in being specific by eliminating the
It is expected to increase to more than 20% post cascading effect of the current tax regime.
GST implementation. The impact on increased
taxes is expected to be absorbed by players in The automobile industry is currently getting
the downstream through reduction of tax rates. impacted on account of taxes like NCCD, Auto
cess, Octroi, entry tax, registration changes and
Cement road taxes. With the elimination of most of the
Currently, effective tax rate for cement cess and taxes, the automobile industry is likely
manufacturers is 25% coupled with increased to become more cost completive and companies
transportation and logistics costs per metric ton. that already present or evaluating export market
It is expected that the reduced GST rates will for next level of growth will be benefitted from
bring down the overall tax incidence. Further, the the GST regime.
sales depot structure may also get rationalized
leading to substantial savings in the Automakers will have far greater flexibility in
transportation, warehousing and logistics costs. building their supply chains as the additional
costs on account of inter-state movement of
goods is being eliminated under the GST regime.
INDUSTRIAL MACHINERY AND Organization will be able to optimise the
COMPONENTS warehousing, logistics and distribution costs.
In certain cases, there is a bundling of goods and
services for various types of industrial machinery Automobile manufacturers can also re-negotiate
and components. This phenomenon has given the contract terms as the vendor on the
rise to litigation with the tax authorities on the upstream will also be able to enjoy significant
taxability of goods and service portion, both reduction/rationalization of the costs.
being subject to different tax rates. With Importer-Distributors of automobiles and the
uniformity in the taxes, such litigations and costs resellers in the domestic market will be able to
on account of litigations are expected to reduce claim input credit on all costs associated with the
significantly. business on the basis of taxes paid. Seamless

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flow of tax credit across the supply chain is also components under control and formulation of
likely to make the distributor-importers and product specific pricing models/strategies/
reseller more competitive in the market in offers is a key imperative.
addition of expansion of margin.
SAP S/4HANA enables businesses to view the
Automobile companies are also likely to be impact of price components on the overall costs
benefited from the reduced levels of litigations, of the production and supply chain. Also it helps
ease of compliances with the taxes being limited in formulating the product, market, segment
and operate effectively under the simplified GST. level pricing and sales strategies to gain
maximum mileage.
However, any withdrawal of area based/linked
incentives; limitation of export based incentives Commercial Vehicles
is likely to impact adversely, especially to the GST is expected to remove number of logistics
companies that have already made significant related issues and provide impetus to the overall
capital expenditure. transportation and logistics industry. In such a
scenario, ensuring appropriate productivity and
The used car/pre-owned car industry is also efficiency levels is one of the key priorities for the
awaiting guidance from the GST law on transportation and logistics industry. This
application of taxes. Currently, except for few incidentally will exert pricing pressures on the
organized players, the market is largely manufacturers of commercial vehicles.
unregulated. GST law and rules applicable to
used car market is also likely to have significant Commercial Vehicle manufacturers needs a
impact on the automobile manufacturers, robust technology solution and CRM capabilities,
though indirectly. available with SAP HANA, which will assist the
company to capture post sales/warranty/
Two Wheelers service revenue opportunities through
In case of two wheelers/entry level passenger maintaining continual engagement with the
cars it is expected that the tax rates will be customer through-out the customer/vehicle
reduced to 18% from existing 24%. In such a life cycle.
scenario, the automakers are expected to be in
position to transfer the benefits to end Further, improvement in the productivity of the
consumers, though partially. However, such fleet may reduce the incremental demand for
benefits will quickly phase out and the auto replacement of commercial vehicles.
makers will be under pressure to ensure robust Margin benefits will also accrue in the farm
cost management coupled with competitive equipment segment translating in reduced cost
pricing without compromising the value offered of capital expenditure for farmers.
to the customer. It also indirectly impacts the
sourcing of auto components. The ability to
maintain procurement costs of auto

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Auto-component micro level costs through-out the value chain is


Organized manufacturers of auto components, of paramount importance for the development of
batteries and other spares are expected to innovative product pricing and marketing plans.
become more cost competitive. SAP S/4HANA enables businesses to leverage
data and generate insights for formulation of
DISCRETE MANUFACTURING innovative and consumer centric product pricing
Indian Inc. with focus on manufacturing does not and marketing strategies.
review the decision to set up manufacturing
facilities solely from tax benefits perspective. Media and Entertainment
The review also includes evaluation of the core Elimination of the entertainment tax is expected
business efficiency at all times. While GST may to reduce the cost of such services for the
have in immediate impact on number of capital customer. This may also lead to reduction in the
investment decisions, a robust modelling of the average ticket price and increased levels of
scenarios post GST is required for the footfalls in locations, especially multiplexes.
manufacturing community to take a sustainable Production houses and studios will also be able
and economically advantageous capital to claim input tax credit of payment made for
investment decisions. creative services as against their tax liability on
With SAP S/4HANA, manufacturers will be able service revenue.
to analyse high volume of data on the basis of
market, demand, production, inventory across The current indirect tax system with respect to
various locations and compare with the post GST media and entertainment sector does have
scenario. Such analysis will enable the issues on account of high level of entertainment
management of the companies to capture the tax, cascading impact of input taxes and
opportunities in disguise which will be unfolded exorbitant rates. While GST is expected to bring
only after the launch of new tax regime. in relief, the quantum of tax that will be levied by
local bodies in respective states will also decide
OTHER INDUSTRIES the fate of the Media and Entertainment industry
post GST.
Tobacco
Tobacco and ancillary industries to Tobacco are Bank, Financial Services and Insurance
expected to face pricing pressures as the Cost of insurance policies may increase on
products are expected to fall under the highest account of incidence of the tax on services under
tax rate regime. The industry has been quiet the GST regime.
successful in transferring the impact of
increased taxes to consumers by increasing the
prices. However, with introduction of product by Civil Aviation
competitors at lower price points, the industry Flying may become more expensive on account
needs to re-evaluate its production, distribution, of increased taxes on services under GST.
packaging and logistics costs. Visibility of the

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Real Estate Oil and Gas


Currently, the real estate sector is unable to The Oil and Gas sector is largely out of the GST
utilise significant portion of the input credit on net. As the products i.e. crude, natural gas,
construction materials. Under the GST regime, aviation turbine fuel, diesel and petrol will be
the concern continues. However, uniform tax kept out of the GST regime while certain
structure and increased levels of tax compliance products like kerosene, naphtha and LPS will be
is expected to have a positive impact on the covered. The Oil and Gas sector will have
real estate. enormous challenges on account of compliance
requirements with existing as well as the new tax
Infrastructure regime. It is expected that high value of input tax
The fate of infrastructure under the GST regime credit may get foregone and this will give rise to
depends on the continuity of the various inflationary situation for the Oil and Gas
incentives available. products and for rest of the economy, being
basic inputs for all key manufacturing and
processing activities.

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The Alpha and the Omega of GST

Recent developments impacting your business

INVESTMENT LINKED TAX INCENTIVE GOODS AND SERVICES EXEMPTED


GST Council is deliberating on conversion of the FROM GST
tax incentives refunds. The transactions will GST’s impact on the inflation largely depends on
continue to be taxed to maintain the value added the decision of the GST Council in the process of
tax system post GST. Businesses that are selection of items that will be exempted under
subject to area based incentive/SOP’s need to GST regime. It is thus very crucial for India Inc.
ensure establishment or upgradation of the ERP to ensure readiness for evaluation of the impact
system which ensures the application of of rates on current set of exempted goods vis-à-
appropriate tax principles to diverse vis the new set of goods exempted from Excise
transactions and accurate computation of the duty and state VAT.
available input credit vis a vis adjustable
input credit. Through robust technological capabilities, SAP
S/4HANA enables business to apply various
SAP S/4HANA has capabilities to generate business scenarios to existing business
robust management information systems duly transactional data and perform impact analysis.
providing periodic reports which contain
business information that matters most to the
decision makers. Organizations thus need to
define business strategies and tactics not only at
business unit, segment but also at product level.
SAP S/4HANA enables formulation of micro
strategies.

For more information on GST,


visit: http://sap.com/india/simplegst

Note: The material and the information therein related to taxation are proprietary to Dun & Bradstreet Information Services India Private Limited.
Any content that has mention of SAP products/services is owned by SAP.

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