GST – Business Transformation or Threat?

By: Ashok Kapoor, VP – Marketing, Newgen Software technologies Ltd.

India will operate as one market from April 2017. As big as this statement sounds, GST is already touted as India’s biggest tax reform yet. As our country prepares for the new tax regime, everyone is racing against time to be GST-ready. All said and done, GST is set to transform the way business in India happens.

What does this transformation actually mean?

By now, all concerned are aware of the draft model and some of the basic minimum requirements at a ballpark level. The main objective is to minimize the complexity of the indirect taxes at various points in the value chain and reduce the cascading effect of the variety of taxes on the pricing of goods and services. That much is understood - and to that extent, organizations are working on their processes and systems in accounting, taxation, billing, credit, cashflow, and all directly relevant reporting and compliance structures.

However, GST will trigger business transformation beyond taxes and beyond financial planning and reporting.

For one, it will impact sourcing decisions. One would be able to go beyond the constraints introduced by the previous cascading and non-uniform tax regime and make decisions driven by business propositions. Sounds straightforward, but once the compliance and reporting requirements are done and dusted with, the sourcing decisions would have to start changing beyond tactical and that’s where enterprises would have to be ready.

Secondly, there would be opportunity to rationalize pricing across geographies and pass on the benefits to end-consumers. It doesn’t have to be an act of benevolence towards customers, but in this open economy it is a matter of competitiveness and business sense. As the tax constraints get out of the way, there would be pressures on the backend systems to be ready for changes beyond tax calculations and towards getting proactively ready for more streamlined pricing mechanisms.

Now, sourcing reassessment and pricing rationalization are still what we should bucket under direct impact of GST. Still, there is an aspect of GST that could potentially threaten your business, and it has to do with how the world has changed too.

Could GST act as a catalytic threat to your business?

We’re fast moving into a digital world, if not already in the middle of it yet. These are the times of digital ecosystems and multi-sided business platforms, enabled by the access and reach of various participants of a particular industry. Value Chain is fast giving way to Value Web, where all participants - suppliers, partners, manufactures, resellers, financial services providers, and customers - connect in ways that was not possible erstwhile. The broader impact of GST, in this context, emerges out of the perfect storm of single market economy, digitalization and fast changing consumer behavior.

GST is going to be a potent catalyst to propel this trend even further and faster - with a level playing field and a simpler business ecosystem where two entities can go ahead and perform business transaction as part of a broader value web more smoothly. A business operating in a local territory today can potentially face competition from anywhere across India. Any business that can understand the advantages associated with this resulting unified regime in a digital world, can leverage it to penetrate in hitherto untouched markets.

How can enterprises cut these threats, and turn it into an opportunity?

It’s fairly straightforward; and not.

In order for your business to thrive and succeed in this fast evolving business model, the processes and systems have to be ready. Your organization needs to prepare to connect, orchestrate, and interoperate. While these are high-sounding words, what matters is that businesses prepare well for the changes. Your business processes would need to be nimble.

It’s not a stretch of imagination, but a direct implication from changes in value chain.

And why would value chain alter?

The way the goods flow outward and the money flows inward in a traditional value chain - which was further constrained by variety of tax regulations - is bound to get optimized in the new regime and resulting supply chain scenarios. And, it’s not just about supply chain and logistics. It is about business processes that encompass end-to-end lifecycle of Order-to-Cash, Procure-to-Pay, and Record-to-Report. It’s one thing to say that systems and processes would change when that have to, and altogether another to say that processes needs to be nimble in order to change before they have to.

Agile Business Processes - Easier said than done?

Now, even if enterprises recognize this opportunity, it’s easier said than done. Being proactive always is. In this case, the opportunity presents itself in the form of a more urgent imperative, and that is - to be GST-ready.

But how do enterprises make it happen beyond the minimal GST-readiness and to become more holistically ready? First and foremost step, obviously, is to acknowledge the change of guard and actively look for areas of potential improvements. Many of these areas of improvements could still be a marginally incremental effort over and above the fundamental necessary steps towards GST-readiness. Many of those might be already planned and to some extent, executed. However, a process level opportunity can only be addressed with a process mindset first. It would be required for organizations to elevate this transformation from finance, accounting, taxation, billing & sourcing, and look at the end-to-end business processes. Developing that mindset and looking at holistic improvements in business models would be necessary. A business process platform also eventually helps in developing that process level nimbleness. The first step, however, would be to recognize the threat (or opportunity) hidden in the garb of GST. The countdown is on.