GST: A hit or a miss ?

February 10, 2017 3:31 pm

With the high profile Goods and Service Tax (GST) set to be implemented from July this year, let’s see if it is going to be a hit or a miss ?

In what can be said as the biggest reform since independence, the Goods and Service Tax (GST) was passed in the Rajya Sabha, in August last year. It is expected that GST will replace a levy of taxes that include luxury tax, VAT, excise duty, central sales tax, entertainment tax and lottery taxes with a single tax.

Experts believe that if brought into force, the GST will be a big boost to the nation’s GDP, increasing it by 1 or 2 per cent points.

The GST will be a kind of VAT that will be common across the entire zones in India. In a lucid manner, every state across the country GST is a kind of VAT that would incorporate every other within a single channel within. In short, each state is going to have the same GST rate, or the states can’t fix their own rate.

Stronger business platform
GST is set to ease out the stress that most of the Indian manufacturers experience when it comes to paying the taxes. With the implementation of GST, the manufacturers will have to pay lower taxes resulting in having a scope for a better business environment and flexibility.

Ram Grover, Managing Director, Elesa and Ganter India Pvt Ltd is very optimistic about GST. “I believe that the way of doing business in India will get simplified with the introduction of GST. Industry in general will be benefited from this,” says Grover. While explaining the Indian context of doing business, he says, “We have always heard that ‘Business drives tax, and not the other way round’. However, in the Indian context, indirect taxes have driven businesses to re-structure and model their supply chain and systems owing to multiplicity of taxes and costs involved. India is at the cusp of moving to the GST regime, which is being seen as one of the biggest business reform as against tax reform.”

Uniform tax rates
GST will result in having a uniform tax rate throughout the country. Many manufacturers try to scrap the rates to increase the number of people buying the product. On many occasions, it has been observed that the state governments reduce the VAT prices, resulting in a loss for both, the state and the centre.

Also, the uniform tax rates in each state would also be a boon for the inter-state trade. Currently, there are no tax credits that are being offered for inter-state trading.

“India is on the verge of historical Taxation change after the freedom. There have been many central governments came and went, adding their fare-share in bringing ‘Common Taxation’ policies. Goods and Services Tax (GST) is a tax levied on goods and services delivered by companies in India. Since
Tax for goods and services of our nation is going to be calculated uniformly, it will affect across the sectors, more or less, positive or negative,” says Maulik Patel, Executive Director, Sahajanand Laser Technology Ltd.

Speaking about the current tax structure, Patel states, “When it comes to machine tool industries, it is a backbone for countless industries. Hence the any change will ultimately influence entire manufacturing chain. In order to gauge the effect of GST, we need to understand the current taxation structure. Currently, 12.5 per cent of excise along with 5 per cent of VAT and 3 per cent of other taxes is levied. All these taxes amount to a total of 20.5 per cent tax which is paid by manufacturers on capital goods. When GST will be implemented, the tax will be reduced to 18 per cent and the major change is that it can be passed further by manufacturer. Hence at one hand the percentage decrease will led to price reduction of multiple ancillary goods, the burden which was on the shoulders of manufacturer is also gone. This way, overall costing of manufacturing tools and equipment’s will come down. It is going to be extremely favouring for the Indian manufacturers as these capital goods would be able to compete against Chinese goods which have been destructing many industries since years.”

Patel is quick to explain the current scenario of taxes. “At the moment, 2 per cent CST is being levied on inter-state trade, which will be eliminated after GST comes into picture. On the other hand, the compliance work is surly going to increase as in, at present where we are filing approximately 28 returns which will rise up to as much as 49 and that is going to be burdensome over the companies,” he says.

According to Patel, the unorganised manufacturing sector tends to avoid tax by transacting in cash. However, with the GST bill coming in, all the sectors will be brought at the same level. This will lead unorganised player to pay tax systematically.”

Simple enough
GST is simple. The economic process of the entire nation can be fairly taxed. One will not have to perform complex calculations for the taxes. Undoubtedly, this is going to be simpler to get, and sleeker to operate as well. In fact, it could be made a policy point for a better understanding of VAT for the traders. The whole process of management and understanding the taxation system will be simpler.

Vivek Nanivadekar, Executive Director, FIBRO India Precision Products Pvt Ltd says, “Though the modus operandi of GST is not very clear at this moment, I believe it would certainly change the way of doing business domestically. There will not be differentiation between Goods & services, bringing both under one umbrella. As it would simplify doing business, it would certainly boost it. Hence it would also help GDP to grow. Overall it would boost the economic growth of the country. It should create more employment. I am sure it would simplify invoicing eliminating existing complex taxation. The pricing structure would be uniform across the country. I hope the end consumer would benefit from this. This would certainly attract the overseas investor to invest in India. Let us hope that it would reduce the corruption if not eliminate it fully.”

He further adds, “As it looks today GST will have positive impact on the business atmosphere in the country. I guess India would be one those few countries having implemented GST.”

More tax payers
GST can make a higher count of the tax payers. Hence, the cut in tax rates can be well manifested by the increase in number of tax payers.

Nitin Wakode, Associate Vice President PSG, Onward Technologies Ltd too lauds the govornment’s decision about the implementation of GST. He says, “Ever since the new government took charge with development agenda, industry is hoping for many changes. GST was one of the major expectations of industry.”

Wakode further adds, “GST is one of the major transformation in taxation with many more challenges in implementation from states. It does matter where we stand in list but more important for us is how much pie of international business we are able to capture. GST will eliminate multiple levies. It will help deeper penetration of digital services. When we talk of global economy and growth we must shade away state level hurdles in taxations. When our own Indian manufacturers were facing tremendous challenge in doing business how come the foreign investors will take us. It may be late but fortunately we can call it as dream come true once it is implemented. We will surely become one of the favourite investment destination in Asia. It is one of the best signal to world after demonetisation.”

Mixed reactions
Nilesh Karandikar, MD, Fine Handling & Automation Pvt. Ltd feels that GST will come with its own set of advantages and challenges. “Reducing the complexity in taxation is definitely a need of the hour,” points out Karandikar. He further explains, “With implementation of GST, there could be some pain in the short run, but the advantages far outweigh the benefits in the long run. Back in 1990s, when the economy opened up, many businesses and their economic logic were threatened. However, people quickly aligned to the new set of opportunities made available by the liberalised economy.” Karandikar expects a similar trend with GST implementation.

For L Krishnan, MD, Taegutec India Pvt Ltd, GST is a very critical tax reform. “One can only be able to understand the exact implication for different business only when there will be clarity on tax administration and the tax slabs,” he insists.

The Indian economy for decades has been driven by the Small and Medium Enterprises (SMEs). Today we have around 3 million SMEs in India that are contributing to around 50 per cent of the industrial output and over 42 per cent of India’s total exports. Hence, for a country that is on the development path enriched with the demographic diversity, SMEs have emerged as the leading employment-generating sector and has provided balanced development across sectors.

No doubt that GST is aimed to increase the taxpayer base, majorly SMEs into its scope and will put a burden of compliance and associated costs to them. However, in the long run, GST will turn these SMEs more competitive with a level playing field between large enterprises and them. Furthermore, these Indian SMEs would be able to compete with foreign competition coming from cheap cost centers such as China, Philippines and Bangladesh. The after effects of GST on the business will only be clear post implementation of this historical bill.