GST countdown starts : 15 weeks to go

If there is one thing that's clear from the landslide victory of ruling party in recent elections, it is this: GST in India will become a reality soon. Now the real question is whether is India ready for GST. 

GST was one of the most searched terms in India in last year, and the original schedule envisaged April launch. So one would expect absolute readiness on all sides. A random survey of corporate India though reveals that preparation is just about gathering steam. This seems puzzling though. Government has given adequate time to prepare; and most corporates have been demanding GST be brought in for years. So one is left wondering, where is the catch. 

The explanation is probably two fold, one is the usual issue of change management and the second is complexity of this transition. Let's deal with them one by one and debunk a few myths along the way. 

I : Change Management

GST calls for a steep learning curve. It's like learning a new language, with its own vocabulary, expressions and idioms. A quick look at the lay of the this new land follows. 

India has 80 Lakh indirect tax payers, give or take. These were earlier divided under excise / sales/ service and under central government/ states/ union territories. Now they all face a single entity, GSTN, which stands for Goods & Services Tax Network, a quasi Government body. This entity will interface with 34 GST Suvidha Providers (GSPs) on one side and various Government bodies like CBEC etc on the other side. What is the mode of communication? It is a paperless system, which will deal with billions of invoices a month. Obviously only way it can is through computer programs talking to each other through APIs, short for Application Program Interfaces. The data structure and formats (JSON) are standardised to ensure huge amount of data communication in a secure and seamless fashion. The GSPs are conduits of information between GSTN and Tax Applications, called Application Service Providers, or ASP in short. ASPs would in turn interface with information system of a tax payer entity (whether sophisticated ERP like SAP/ Oracle or basic Microsoft office) to prepare returns on monthly basis for onward transmission to GSTN via GSP. This layered system will ensure robust network with load balancing and helping data security and speed. So now a corporate has to choose a GSP and an ASP who would prepare the necessary applications, test it and be ready to file returns in next 15 weeks. Anybody who has worked with customising ERPs knows this is no cakewalk, and this one will be challenging because everyone else will be busy with the same thing at the same time. Think of Y2K transition to get an idea.

Apart from the tactical aspect of timelines, GST is a foundational piece of Digital India, like UID. Apart from making the notion of single common national market a reality through "One Country One Tax", it enables system of tax collection to be self regulating. It also creates data that can over time assist various critical corporate decisions like vendor/dealer selection, provision of credit etc with analytics. This will truly change corporate India, in the same way Aadhar or UID is changing the lives of citizens. Just like UID started from digital identity, but is slowly becoming bedrock of all public and private services, GST is starting from digital tax; but will end up revolutionising corporate world. It is a massive digitisation exercise on a mammoth scale. There will be winners and losers here. Generally speaking, the organised sector will win at the cost of unorganised and businesses with economies of scale would be able to leverage those more freely going forward. However, all this comes with the caveat of complexity which is the second aspect. 

II. Complexity of Transition

So now lets assume one has fully embraced this foundational change coming through at the CXO level. Now the implementation challenge starts. Businesses are currently organised around silos, whether between sales territories or between departments like purchase, tax/ tech or between divisions like upstream/ downstream. Generally speaking these silos maintain porous borders but deal with each other in aggregate terms- say monthly budgets etc. The cyclicality of each domain also makes these silos drift apart as priority of sales would be at the time of end of reporting cycles, tax/ accounting after that, IT during times of technological changes, finance during times of market turbulence etc. Given these external influences are uncorrelated, each silo starts to appear like a different vertical unit over time. GST turns this vertical business organisation logic on its head. On every purchase or sales invoice of goods or services, it would require the relevant owner of activity collaborate with tax, technology, accounting etc horizontally. This is due to the unique feature of Indian GST which mandates matching of every piece of data between counterparties. So at one level the sales & purchase would need to collaborate internally. At another level, purchase would need to horizontally connect to vendors on one hand and sales with dealers on the other hand, again invoice to invoice. All this necessitates making the organisation horizontal instead of vertical silos, with the data flow being like a car being assembled on an assembly line by passing through number of different stages quickly and seamlessly. Now the challenge is the lingo of each of these domains is different. So for example, the sales guy understands promotions, the purchase guy understands returns, fhe tax guy knows place of supply, the finance guy knows discounting and the IT guy knows APIs. Now imagine on one particular sale, this cross functional team needs to collaborate. And this will happen day in and day out, millions of times for large corporate every month. This complexity is not well appreciated yet. To summarise the impact, a corporate may have assessed that GST would increase its net margin by 400 bps or 30%, but that may remain on paper unless it is executed via necessary collaborative teams. And the time remaining for all that again is the same 15 weeks. 

The key imperative therefore is to internalise the oncoming changes and start executing. Most proactive corporates are ready with their impact assessments on GST, including the warehouse/ logistics reallocation and other consulting inputs. However, the execution of those changes, and customising to the final business rules that would come soon and creating a crack cross functional transition team needs to be accelerated. Choice of GSP, ASP and other third parties is extremely crucial in this in ensuring that relevant tax inputs are available on a continuous basis given this will undergo changes for next few quarters at least (remember the number of rule changes in demonetisation!) and the scalability and robustness of the IT platform given likely bunching up of data around monthly reporting dates.  

The coming 15 weeks thus holds the key to the potential for smooth transition to GST thereby deriving benefits in terms of transparency, better margins / sourcing/ logistics and creating an analytical foundation by high frequency rich data for business. On the other hand, the dangers of complacency or lack of expediting activity now can range from chaos leading to suboptimal decisions and lack of input tax credit leading to loss of competitiveness all the way to disputes, blame game and litigations.

Clearly, the choice is in the hands of CXO is here and now. Whether to get ready to board this long awaited train to the promised land or stand in the way of this oncoming freight train that will become chaotic the longer one waits on sidelines.