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GST implementation will push SMEs and startups to automation

Feb 24, 2017

The GST will be rolled out by July 2017 and will bring radical tax reforms. Segments most affected will be small and medium enterprises (SMEs) as well as startups—this is the sector that is considered the backbone of the Indian economy, employing 40% of India’s workforce and contributing 45% to the manufacturing output. India has 26 million SMEs (Source: Ministry of Micro, Small and Medium Enterprises), along with the fourth highest number of startups (3,100; NASSCOM report) globally. This number would possibly increase to 11,500 by 2020.

It is against this backdrop that reports showing the adoption of modern technology, including the enterprise resource planning (ERP) software that provides business solutions, as tardy needs to be discussed. According to a Confianzys report: “The numbers reveal that at least among the SMEs in this sector, there is still very little awareness of the benefits that an ERP solution could confer. Perhaps the scale of operation and the nature of management too do not make ERP implementation imperative.”

For example, Rajasthan’s economy depends on SMEs. According to a report by the Rajasthan Chamber of Commerce and Industry, the number of SMEs is around 3.35 lakh. However, the proportion of MSMEs utilizing software, such as ERP is low, around 42%, according to industry reports.

GST rollout will make transition to software technology inevitable

A transition to technology would be unavoidable as there are aspects in the GST such as input credit, twin rates, destination system, exclusion, etc. that need automation for proper implementation. Factoring them manually would be difficult. Companies which already have ERP setups will need to modify them, and those that don’t will have to procure software that is GST compliant.

In such a scenario, enterprises and businesses, particularly the first timers, would need to ensure that their software has two important things: (1) it is cloud-based and (2) it is GST-compliant. In turn, a GST-compliant Cloud ERP will ensure many things: calculation of taxes, application of tariffs, and compliance. Automation will, no doubt, remove possibilities of human error—since the smallest mistake may result in an inflated tax bill, hurting businesses just starting out. Nonetheless, equipped with cloud-based business tools, businesses can handle GST requirements and may even end up saving on taxes.

Why is there low technology penetration in India’s SMEs?

Companies may be reluctant to go for Cloud ERP as they fear that investing substantial money in a business solution may not be a good idea. They are simply not confident about the returns on investment. Such companies can go for Software as a Service (SaaS) models that are more suitable due to two reasons: (1) lower costs of SaaS ERP and CRM; and (2) pay‐as‐you‐go basis. No need to get trapped in lock‐in agreements.

Enterprises use the ERP software a lot in the West. To keep up with the fast world, Indian startups and tech enterprises too need to be up to date. The GST will just nudge them on to a high-growth trajectory.

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