The Hindu Business Line : VAT to do: A corporate guide

The value-added tax regime is just days away. In most organisations, it is seen as the responsibility of the finance team, but with far-reaching implications, any successful implementation of VAT would require the participation of such departments as IT, sales, supply chain among others. The time and resources needed to make the transition to the new regime, requires proactive corporates to act decisively and now, says Abhijeet Virmani.

THERE continues to be a lot of media attention on value added tax (VAT), most of it on the political developments, and some on the business aspects. While some of the coverage is useful, no article has laid down, for corporates, a comprehensive roadmap of what needs to be done in the post-VAT scenario. Here is an attempt:

Form cross-functional teams

In most organisations, VAT is being administered by the finance department and the chief financial officers (CFO). This is not optimal since VAT has far-reaching implications. For instance, changes need to be made in the Enterprise Resource Planning (ERP)/legacy systems of all companies; this is the responsibility of the information technology department. Training channel partners on the implication of VAT is the responsibility of the sales team. The supply chain manager is responsible for changing the warehousing strategy.

Hence, a VAT team that comprises only finance and legal personnel is not enough. It requires the participation of such departments as IT, sales, supply chain among others to be successfully implemented. Organisations that have not put such a team in place should do so now. The team in addition should also have a sponsor who can give direction and monitor progress.

Use the Internet

With the deadline only a few days away, hectic activity is underway, in terms of passing and updating legislation and rules. For corporates which have a national presence, it is difficult to keep track of what is happening across the country. There are a few Internet sites that provide this information, www.stvat.com being one such. Registration is free and the necessary information can be downloaded with ease. Members of the VAT team ought to check this site out.

Appoint an expert

Though VAT has been implemented in over 130 countries, the fact remains that there are not many trained professionals on the subject in India. Even the large tax firms have a small team of five to 10 experts on indirect taxes and, perhaps, VAT.

In the next six months, most corporates will require expert opinion on matters ranging from strategic issues dealing with aspects of warehousing strategy to basic inputs on stock, schemes and discounts, credit notes, and so on. Corporates that continue to play the waiting game in appointing experts could find themselves in a situation where the demand for experts exceeds their supply.

Update transaction systems

Corporates will need to ensure that their transaction systems are in line with the documentation requirements of VAT. Like consultants, IT professionals will come in for demand as a large number of clients will require assistance at short notice.

For companies that have implemented the well-known ERPs (BOPES — Baan, Oracle, Peoplesoft, JD Edwards and SAP), it may be slightly easier as they will have the expertise and the bandwidth to provide client support.

For smaller companies, Tally seems to be ready with a new version. For those that use lesser known ERPs or legacy systems, the problem can be serious. In any case, it would be best to get the transaction systems updated at the earliest. It would also be worthwhile getting the output, in terms of invoices, etc., validated by a legal expert.

Partner with intermediaries: Corporates continue to enjoy the luxury of relatively superior manpower as well as greater exposure. Spare a thought for channel partners such as the stockists, wholesalers, and distributors. This community has opposed VAT from the start.

While some of the smaller intermediaries may move out of the VAT net, the large ones, especially those that are exclusive, will continue to look for support in the coming days.

Corporates will need to resolve this issue on two fronts. One, imparting basic training to critical large intermediaries to ensure that they understand VAT. And, two, set up a temporary help desk for two-three months so that any queries of intermediaries can be recorded and resolved at the earliest. As mentioned earlier, the sales team will need to work tirelessly to ensure that implementation is smooth.

Assess the VAT impact

The finance team will need to budget the financial impact of VAT. Most CFOs are waiting for more clarity but at some stage an in-depth analysis will be required. Such an analysis will also provide opportunities for tax savings. The impact analysis should be done quickly as it could take 1-2 months to complete depending on the complexity of operations and the availability of information. There are ways to expedite the process. For instance, some firms have developed VAT calculators thereby reducing the time required for analysis.

Transition to lean supply chain

Finally, companies will need to move from the prevailing system of using Clearing and Forwarding Agents (CFAs) to a hub-and-spoke model. This transition will involve terminating contracts of select CFAs, relocating personnel, equipment and inventory, etc. This cannot happen overnight. However, a company that successfully makes the transition of its supply chain will benefit from significant cost savings. Corporates must work closely with their logistics providers to put in place quickly a lean supply chain format.

VAT has been postponed earlier and deadlines could get moved this time too. However, given the changes required to make the transition to the new regime, proactive corporates should act decisively, and now.

(The author is co-founder and director, Positron Advisory Services, a business consulting firm.. Feedback can be sent to abhijeet@positronservices.com)

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