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By Sarah George, ERP/EPM Cloud Applications Business Development Manager and Product Leader
Retailers across South Africa have been left scrambling following the recent one percent increase to the VAT rate in South Africa (to 15%) that comes into effect from 1 April.
While a percentage point seems innocuous, this will have a significant impact on vital back office systems like enterprise resource planning (ERP), essentially the glue that keeps data in the organisation integrated. Even though this will affect companies across industry sectors, those in a consumer-facing industry, like retail, will especially be challenged. There is likely to be a significant effect on consumer spend, not to mention the scale of updates needed on enterprise systems and the extent to which reconciliation and reporting will need to change.
Here are three factors that retailers should consider as they transition their pricing models to the new VAT rate:
With many financial analysts predicting that the VAT hike will have a negative impact on demand, which will be especially damaging to small and medium businesses, the reality is that the next few weeks must be spent preparing for the changes required.
Because VAT is such an embedded element in pricing, irrespective the increase, systems need to be altered. However, businesses cannot change anything until 1 April as these are the core elements currently in operation. What is likely to happen is that companies will update their basic and subsidiary systems and perform a switch over while the current production is running.
While those businesses that are operating on the cloud will have a slightly easier transition path, this is mitigated to an extent by the technical changes required for on-premise systems.
To some degree, the cloud will help with the reporting configurations and the inherent ability to provision for the new VAT rate change. As the updates on a hosted environment can reflect changes more dynamically, many businesses will be able to benefit, depending on when their financial year-ends are. The cloud can make the process a lot smoother but there will still be many implementation changes required at an organisational level.
Fortunately, the cloud provides an effective alternative to becoming ‘change’ compliant. There are cloud-based solutions that will enable business users to make relevant updates to transactions and reporting requirements as needed. This is especially important given how the change will impact on multiple transactions, price adjustments on goods and services, as well as any credit or debit notes raised prior or after the change.
Using a secure cloud service, organisations will be able to deploy a change in VAT without disrupting the existing finance system. Furthermore, decision-makers will be able to tap into global best practices with a VAT cloud offering that is developed by experienced practitioners in the field to minimise any potential business impact.
Looking at the back-end enhancements required, companies will need to review the configurations, and possibly develop scripts to update certain transactions/business rules to provision for VAT changes.
Essentially all applications and master data would need updating as well as the other configuration changes required. It is possible, but decision-makers need to be aware that the VAT hike means noteworthy updates will need to be made to their master database information.
Looking at how retailers need to change how items are priced, how the master data structure needs to be adapted, and how much goods are sold for, there is clearly a lot of work still to be done.
The scale of this increase should be viewed as more significant than just the one percent. Instead, it presents a fundamental shift in approach across all systems in the business. The next few weeks will be critical to a successful implementation.