Trend

The software side of VAT

Vendors are hawking ERP and accounting software to make companies’ existing IT systems VAT-compliant. Sushma Naik reports

To sustain or improve margins, companies will have to re-evaluate their supply chain structure Ravi Kathuria Director, Marketing SSA Global, India

Companies are busy working out the impact of VAT (Value Added Tax) while politicians are still arguing about it. 21 of India’s 38 states and union territories have decided to adopt VAT. Vendors selling ERP and accounting software are busy helping organisations fix their IT systems. Most of the vendors have released changes that can be used by existing customers to make their IT systems VAT-compliant.

With the new regime, organisations need to modify their existing systems to accommodate VAT, re-organise supply chains, and optimise them vis-à-vis the new taxation structure. For example, many companies had set up their manufacturing plants or warehouses such that they could benefit from the tax variations between states. With VAT, the advantage may shift to companies that have warehouses near their factories or showrooms.

“To sustain or improve margins, companies will have to re-evaluate their supply chain structure and decide to close or open new offices or warehouses. This will create new opportunities, but it’s difficult to predict the market size,” says Ravi Kathuria, Director, Marketing, SSA Global India. Organisations are re-doing their costing and inputs before looking at the whole structure.

The switchover

With the switchover to the new regime, sales tax has been merged with VAT. The scope of VAT includes individual, partnership and corporate tax. “The detailed understanding of requirements, interpretations of VAT legislation, and compliance with processes will take some time to stabilise. Post-stabilisation, it will result in opportunities for automation of VAT-compliance,” says Rajeev Mittal, Director, Small and Medium Solutions and Partners, Microsoft India.

Players such as 3i Infotech believe there is a sizeable opportunity in services.

Says Manoj Kunkalienkar, Executive Director, 3i Infotech, “Apart from products, there are opportunities in providing consultation to governments and companies.” 3i has already upgraded its ERP product, Orion, and made it VAT-compliant.

However, not all players believe that this is a large opportunity. Says Anil Bakht, CMD, Eastern Software Solutions (ESS), “This is not a new, large market opportunity for IT companies. At best, it may be an incremental effort to modify current software for VAT.”

The perceived lack of market opportunity and the political twists have not stopped vendors from making their software VAT-compliant. For instance, Oracle’s India localisation team, a part of the company’s development centre at Hyderabad, is working with the sales and pre-sales teams to prepare customers for VAT-compliance. The team has been testing various modules of Oracle applications for VAT-compliance since 2003, when the Indian government first proposed a countrywide switchover to a VAT regime.

Tweaking systems

We have been raising customer awareness through workshops and training sessions for our channel partners Nagaraj Bhargava Director, Marketing SAP India

VAT will require certain modifications in the technology systems of both businesses (that will pay VAT) as well as governments (that will collect it). “Because we operate in Haryana, the first state in India to implement VAT, we have been using Oracle applications for VAT-compliance since April 2003,” says Ajay Seth, Chief Financial Officer, Escorts.

Oracle’s Indian partners have used the Oracle technology platform (database and application server) to develop specific VAT applications for government departments. ESS is now working on an upgrade of its ERP product, ebizframe, that will support VAT. Similarly, SSA Global is adding state-related modifications to its VAT-enabled package.

Tally and Busy Infotech are also optimistic about the VAT opportunity. Implementing VAT essentially means changing the accounting systems of companies. Tally estimates that there are about 16 million establishments in India. Busy Infotech already has VAT computation and VAT-invoicing modules in place for Haryana; it has also introduced VAT modules for Delhi. Microsoft is working with its ISV partners to help vendors develop VAT- compliant software.

Says Nagaraj Bhargava, Director, Marketing, Alliances & Sales Operations, SAP India, “We have been raising customer awareness through workshops and training sessions for our channel partners.” Some of SAP’s customers (such as Hero Honda) have already implemented its new VAT-compliant software.

Eight million SMBs

We expect a major market for VAT to come from the eight million establishments in the SMB space Bharath Gopalakrishnan President Tally Solutions

“We are expecting a major market for VAT to come from the eight million establishments in the SMB space,” says Bharath Gopalakrishnan, President, Tally Solutions. His company anticipates big business from VAT implementation since it is looking to make its VAT-enabled package available in five local languages. Tally’s main customers are chartered accountants and SMBs.

While upgrading to a new VAT-compliant version helps organisations comply with regulations, most companies wanting to re-evaluate their entire supply chain network will need to buy a new package. Vendors are also looking to convince customers running proprietary, homegrown systems to purchase VAT-compliant software. Currently, 21 states have implemented VAT, while others such as Uttar Pradesh, Tamil Nadu and Rajasthan are still resisting the new tax regime. Even so, VAT represents an opportunity for a huge volume play by established vendors.

sushma@expresscomputeronline.com