Tackling the commercial and operational challenges of a move to VAT/GST
The amount of government revenue collected through indirect taxes such as value added tax (VAT) or goods and services tax (GST) is increasing. As indirect tax grows in importance, the complexity, frequency of changes and scrutiny are also increasing.
Following our article on Rethinking tax: The shift to indirect tax, we look at the impact and implications of VAT/GST introduction and how to manage the commercial and operational challenges in an efficient and timely way.
While the move to VAT/GST is often viewed as a fairly simple change, impacting only on the tax and wider finance teams, a typical readiness project is a significant business issue, requiring buy-in and attention from the entire organisation. There are sizeable change management hurdles and substantial financial, reputational and tax compliance risks for businesses that slip-up.
The business impact and implications of a move to VAT/GST is often under-estimated, leading to under-resourcing and allowance of too little time for implementation.
Key challenges stem from a complex web of place of supply and consumption tax rights, which differ from country to country, between goods and services, and between business to-business and business-to-customer commerce.
The big question is are you allowing enough time in the implementation project for evaluation, preparation and transition? Any changes or new implementations create further operational and systems challenges.
VAT/GST raises prices both as a result of the tax and the higher cost of compliance. The impact should be strategically managed. This includes the implications for demand and how the price jump could be managed
Managing the shift
So how can you get your business ready for VAT/GST and avoid needless strain and errors? Drawing on our recent work with clients moving to new indirect taxes, we believe that there are seven interrelated priorities for smooth transition:
1. Board and business buy-in
2. Understand the legislation and the revenue authorities’ drivers
3. Clarify exposures
4. Recognise and address the project management challenge
5. Priorities for tax teams
6. Priorities for accounting/finance
7. Priorities for IT