Navinfluorine Combats VAT With SAP

by Amit Tripathi    Mar 10, 2005

As the din of Indian Union Budget settles down, enterprises are engrossed in making themselves value added tax (VAT) compliant, what with the March 31 deadline fast approaching, the task seems to weigh down on both businesses as well as the IT department.

Value Added Tax (VAT) is a transparent tax collected on sale of goods or in case of any type of value added to a product. The states and Union Territories have decided to introduce VAT in place of sales tax. VAT differs from sales tax in the fact that it will have only four rates (the zero rate, 1%, 4% and a general rate of 12.5%) instead of the large number of rates of sales tax.

Most companies that run their business on one or the other core business application (like an ERP) need to incorporate the VAT compliant changes in their systems.

Speaking to CXOtoday, Sanjay Mittal, Head-IT of Navinfluorine delved into the intricacies in dealing with VAT, saying that although the task is uphill, with SAP in place, it is proving to be a very smooth transition. “SAP is providing us with regular technical notes to be incorporated in the modules, through their online support platform, the SAP OSS.”

“We at the IT department track the notes that they release from time to time, understand the relevance of these notes to our business processes, and then make changes step by step wherever required,” added Mittal.

Elaborating further Mittal explained, “Once the changes are incorporated they are transferred to the development server for testing whether it fulfills the compliant criteria. At this stage, in case of any discrepancy, SAP is informed to look into the matter. Once the testing is successful it is finally transferred to the production or live system for actual operation.”

Since VAT affects all the departments, in what way is it going to affect the business processes?

Answers Mittal, “Most of the modules need some modification, (but little customization as SAP’s notes are readymade). According to Mittal, VAT brings about changes in the way transactions are done, in the deals with government (for instance taking input credit, and filling VAT), and finally changes in the MIS.”

To leverage the VAT environment, Indian vendors like Tally, Busy Solutions and others have come out with VAT specific applications. In this scenario how does an enterprise stand to benefit more by using SAP’s VAT compliant system?

Says Mittal, “In addition to technical notes that prescribes step by step activation or deactivation of columns or areas alongwith illustration, SAP also provides a comprehensive mapping of VAT related business perspective and analytics, that becomes useful for business as a whole.”

Although most essential commodities are exempt from VAT or fall in the 4% category, most business purchases will carry a VAT charge. VAT paid as input tax can be adjusted against VAT on output that will include VAT paid on purchases of raw materials or goods purchased for resale. The original copy of the VAT invoice is needed to claim input tax credit.

The same set of goods will be charged at the same rates in all the states. Most essential commodities are exempt from VAT or fall in the 4% category. All business transactions carried on within a state by individuals, partnerships, companies etc., will be covered by VAT at the same rates in all the states.

Navinfluorine, a manufacturer of bulk chemicals, plans to start using business intelligence (BI) tool from the next financial year for more analytics. In addition to the current compliance task, Mittal is also leading a unique RF WiLAN initiative at his enterprise these days.

Tags: SAP