'Localization' Lachrymation

 

The meeting was winding down. Mehra was closing his presentation.

"... In summary, we have had multiple meetings with the customer before  finalizing the proposal. We have a good team. Subbu will be the Project Manager. He will will supported by Rohit for Financials, Tara for Supply Chain and Rajesh will be the Technical Lead"

All eyes turned to Subbu. The project was in his hands. The reputation of Innova, his company was in the hands of his team. While the team was good, as the captain of the team, Subbu felt the load of expectations on his shoulders. 

Mehra had explained the customer requirements, the plan, the high level project schedule and the preparations quite thoroughly. Everyone seemed elated.

But one thing was nagging Subbu.

"What about India Localization? Have we planned for resources? That can be quite risky"

"We have a resource, Sanal Kumar, based out of Mumbai. He will be available to lead and guide the team".

Subbu was not convinced. He had a number of questions, but everyone were looking at their watches. He decided to park that point for the moment.

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The project was to implement Oracle Fusion Cloud ERP for the customer Perfect Health Private Limited. The company was into healthy living and had plans for rapid expansion of its product portfolio across India. The company had mainly four business lines HealthPhysique for Physical Exercises, HealthEat the health food business, HealthCare for medical and diagnostic services, and CalmLife, the Yoga and Meditation business of the company. 

In addition the company had a trading business where they imported health accessories (HealthGear) which they sold to customers in India mostly through online sales channel.

There were about 10 legal entities to be configured, nine of them based in India, most of them having operations in multiple states in the country. 

Subbu knew that with multiple operational centers in multiple states in the country, India Localization was going to be complex to implement.  

On that day in August of 2019, Subbu did not know how complex it was going to be.  

Based on the work that he had done for other customers in India, Subbu knew that there were four challenges related to India Localization that the project team must handle. Each one was more complex than the earlier one. 

First one is the complex taxation process in India

Having spent about 70 years on a complex web of taxes, in 2017,  the country had moved to the new tax paradigm, called Goods and Services Tax (GST).

GST was introduced with a noble intention of  'One Nation, One Tax'. It was supposed to simplify the tax process by replacing the many assorted Central and State Taxes that littered the business landscape across the country. Prior to GST, India had three groups of taxes for goods transactions. Central Taxes (Taxes levied by the Central Government), the biggest component of which was Excise Duty, State Taxes (VAT) levied by the State Governments and Local Body Taxes (Entry Tax) levied by municipal corporations. For Inter State sales, the Central Government levied a tax called CST (Central Sales Tax). 

In addition, India was slowly turning to a 'Services Dominated' economy and Central Government had introduced Service tax on select services and the coverage of taxable services were increasing every year.

VAT, CST, Excise Duty, Entry Tax,  Service Tax...The tax system in India was one of the most complex in the world. 

The more the number of taxes, the more the compliance load on the businesses. Businesses had to manage multiple statutory authorities and corruption was rampant in the taxation system.

For over two decades, experts had been discussing about simplifying tax system. The concept of GST was initiated in early 2000s and due to the lack of consensus, the discussions never saw a fruitful conclusion.

Till the current government came to power in 2014.

Country had given them a thumping majority and the government aggressively pursued the negotiations till India decided to go for GST from July 2017.

The first year of GST was terrible. It was introduced hastily, without proper discussion with the stakeholders and infrastructure readiness. GST depended a lot on technology and India was woefully inadequate in that area in 2017. In addition, the entire process was ill planned and complex. The net effect was to significantly increase the process and compliance load on the business.

GST had three different taxes, IGST (for Inter State Transactions), SGST and CGST (for Intra State Transactions) and each of these taxes had five rates, 0, 5, 12, 18 and 28. That itself made the total combination as 15. In addition there was self-assessment tax RCM (Reverse Charge Mechanism).   Considering that the tax configuration had to be done for each state where the Company is registered, the sheer volume of GST configuration was humongous.

Localization challenges did not end there. In addition to GST, India had a complex Withholding Tax Regime called TDS (Tax Deducted at Source). In addition, for some industries, the law mandated to levy taxes on some of the items they sold. This was called Tax Collected At Source (TCS).

Customer placed many an ad in SM (Social Media) and hence they had to pay some tax known as 'Equalization Levy' to the government on the business they did with SM. 

There was an added complexity that some of the taxes were recoverable (could be reimbursed from Tax Authorities) and others were non-recoverable. The Non-recoverable taxes had to add to the cost of the item. The challenge was that no taxes were purely recoverable or non-recoverable. Take GST for example. For some items, 50% of GST was recoverable while the remaining 50% was not. In addition, GST for the same item was recoverable for one business (HealthPhysique) and non-recoverable for another (HealthEat). 

There is nothing called simplicity when it comes to Indian Tax Systems.

Finally, customer had business in Dubai and the Emirates had recently started collecting VAT on some of the transactions. They also had a concept called RCM (Reverse Charge) that had to be configured. 

GST, TDS, TCS, RCM, Dubai VAT, Recoverable tax, Non-recoverable tax.....

Subbu knew that India Localization was going to be complex.

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The second challenge was to identify the correct resources to implement India Localization. 

India Localization is implemented through the module Oracle Fusion Tax. This application is a part of the Financial Suite of the product and to get consultants knowledgeable in Fusion Tax is difficult. Oracle is pushing its cloud applications aggressively and world over there is demand for Fusion Financial Consultants. Since the companies are unable to meet the demand for Financials consultants, no one is focusing on the esoteric product Fusion Tax. 

Sanal Kumar, whom Mehra referred to earlier, is one of the few Fusion Tax experts in the country with the domain knowledge as well as expertise in Fusion Tax. Oracle was pushing Fusion aggressively in India and India Localization was the key driver for most of the companies to go into Fusion.

First two months of the project was easy. Consultants spend time in demonstrating the application and taking in the generic requirements. There was a lot of discussion on Organizational Structure and Chart of Accounts configuration. That took the focus away from Localization.

Even though the teams were focusing on other aspects, localization was weighing on Subbu's mind. He spoke a couple of times to Sanal. Sanal was not very keen on travelling to Bangalore for leading India Localization Implementation. 

"Subbu, you please identify a suitable resource. I will train him or her from offshore. There is no need for me to come to Bangalore" he kept repeating this every time Subbu asked him to come to Bangalore and initiate Localization discussion

The company provided Subbu with Kishore, a finance resource who had never worked on India Localization. He was a soft-spoken consultant without much experience in Finance Domain, but with reasonable exposure to the ERP application. Kishore told Subbu that he was not familiar with India Localization, he has never worked on it.

Subbu asked Sanal to work with Kishore to deliver India Localization. Sanal was very enthusiastic. 

"Let us start off with TDS. That is easy to configure. Once we complete TDS, we will move to GST", Sanal laid out his plans.

Kishore was a hard worker with awesome attitude. He took ownership of India Localization, learned everything and more from Sanal and had become an expert in India Localization by the time the UAT started

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The third challenge was solution complexity.

Two months into the project, Rishabh, Customer Project Manager was getting agitated. "Subbu, I am under a lot of pressure about India Localization. My CFO has told me that he will no longer engage with the project until  you get an India Localization consultant on board. It is almost two months into the project and no consultant has visited us even once, let alone collect the requirements."

Subbu finally got Sanal to come to Bangalore for a couple of days. Agenda was to educate the customer on how  India Localization works and collect the requirements related to that area.

After session by Sanal, he identified five localization requirements.

• TDS (Tax Deducted at Source - Withholding Tax)
• TCS (Tax Collected at Source)
• Import Purchases (Contained Customs Duty and GST - Former was non-recoverable, meaning it will inflate the cost of the product and the latter was recoverable)
• GST
• Dubai VAT

Out of these, all except Import Purchases was standard solution. Import purchases was crucial to the customer. The HealthGear business imported sports and gym gear from China, processed it and sold it locally.

"Subbu, I have not worked on Import Purchases. It works through Landed Cost Management (LCM) application. I have not worked on LCM. I will need time" Sanal told him.

Time was something Subbu did not have. Overall solution had been finalized. It needed India Localization to be plugged in. But what could he do? The application was new and solutions were complex.

Other than Import Purchases, Sanal's visit was a confidence booster. "He knows the subject very thoroughly", Rishabh told Subbu, "My only concern is that he is not based out of Bangalore".

Subbu assured Rishab that Sanal will be available to support the project. Kishore will be available in Bangalore and complete the mechanical tasks of configuration and testing.

Import purchases process can be explained by the diagram below. 

Sanal worked with Product Support team to provide solution to the Import Purchase requirement. Subbu was also actively involved. The proposed solution was very complex and was prone to mistakes. 

In general the solution consisted of following steps.

As you can see, the solution encompassed five ERP Applications - PO, AP, Inventory, LCM and Fusion Tax (Fusion Tax to handle Customs Duty and GST is not shown in the above diagram) and two external stakeholders. The above diagram is incomplete and does not cover the accounting part of the transaction. But it broadly shows the solution complexity involved in configuring import purchases in Oracle Fusion using Fusion Tax application. 

To add further complexity to the already complex solution, the customer wanted Budgetary Process to check for non-recoverable taxes in the above process. The two non-recoverable taxes were Customs Duty and the Non-recoverable portion of GST. 

Since the process covered multiple applications, Subbu needed a super consultant to own the solution and run it till delivery. Fortunately for him, the company gave him Himanshu, one of the best Supply Chain consultant that he had worked with.

Himanshu had it all. He had eight years of experience, had tremendous drive, the instinct to closure, super documentation skills. He took ownership of the solution and doggedly persisted till all the challenges were resolved and the solution was closed. 

But it was an effort, Subbu shudders at the thought of what could have been.

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This being his first India Localization implementation, Subbu was not aware of the impact of the fourth challenge, the configuration complexity of India Localization.   

Fusion Tax Configuration consists of many steps. Each step expands as you go down the level forming an ever widening pyramid. The key configurations (that Subbu remembers) are as follows.

• Tax Regime
• Taxes
• Tax Rate
• Tax Status
• Tax Jurisdiction
• Tax Recovery Rates
• Tax Rules
• Factor Sets
• Condition Sets
• Applicability Rules

In addition, for GST you had to update each item with its HSN Code and each service with SAC Codes. This called for an update of item master.

The other configurations included updating each Business Unit and Operation Center with the GST Registration Number of the respective state. In addition, each Vendor and Customer Site had to be updated with their registration numbers.

The configuration was immense. Customer had 300 operational centers in 22 different states and hence it was a huge task to complete the entire GST Configuration. At the minimum, they had to configure 22 * 4 Types of GST * 5 different Tax Rates * 3 Types of Transactions (Purchasing, AP Invoices and AR Invoices).

On that day in August, Subbu had not realized the complexity of configuring India Localization. The complexity evolved as the project progressed. It was like peeling onion. The more the team discussed it with the customer, the more complex localization became. Customer was also not clear of the tax implications at the start of the project. 

Consultant had to work obscene hours and since the project was nearing critical milestones everyone was under pressure and close to emotional breakdown. Subbu was working crazy hours, leaving home at 8.00 AM and returning anytime between 10.00 and 11.00 PM.

Finally both Sanal and Kishore delivered. They put together the solution, completed the documentations and finished the system configuration.

The process playback (PPB) was a success. The team was able to demonstrate the end to end process flow and customer agreed to move to UAT phase. 

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The rest is history. The project went live successfully. Due to the ongoing COVID pandemic, the last stages of the project were done remotely. The project closed on 17th April 2020 to a highly satisfied Customer.  

About the Author

Ramaswamy Krishnamurti (Ram) is a Senior Freelance ERP Project Manager and Solution Architect with over 21 years of experience in all areas of ERP Implementation starting from Product Selection, Vendor Evaluation an Selection, Presales, Implementation, Upgrade and Support and Stabilization. A graduate in Mechanical Engineering from Calicut University in Kerala, India, Ram did his MBA from Kolkata University and Post Graduate Diploma from the prestigious IIM Bangalore.

He has implemented more than 25 highly successful ERP implementations. He has worked on Scala, Peoplesoft, Oracle EBS (11i and R12) and Oracle Fusion Cloud in various roles including CIO, Program Manager, Delivery Manager, Project Manager, Solution Architect, Functional Lead and Consultant. One thing common among all these roles is an average customer satisfaction rating of more than 90% over his over 20 years of ERP Implementation expertise.

In a career spanning more than 30 years, Ram worked in Manufacturing, Academia and ERP Implementation. He has implemented ERP Solution in all business areas including Procurement, Inventory, Manufacturing, Costing, Order Fulfillment, Financials and Budgeting. He has also worked as a CIO of a Food Product Company and has experienced ERP from both sides of the spectrum. Having done many implementations in India, Ram knows India Localization like the back of his hand.

He loves ERP Implementation and the value that it can add to a customer business and the smile on the face of a delighted customer.

He is currently looking out for opportunities. You can download his latest CV from his LinkedIn Profile www.linkedin.com/in/vkramaswamy. He can be contacted on LinkedIn, Email (vkrama01@gmail.com) and Phone (+919880179317)

Work with him for a perfect, on-time ERP Implementation.