In the wake of implementation of GST this July the preparedness of the industry, or lack thereof, has been in the news
As anticipated there are a slew of challenges being faced by businesses, the most common being of integration and up gradation of existing IT infrastructure to make it GST compliant. Enterprises have to migrate from the present value-added tax (VAT), service tax and central excise registration to a GST registration. Though there is a certain level of IT enablement even today in excise and service tax, GST will significantly enhance the dependence on the IT interface. While larger organisations are better equipped to overcome this hurdle, small and medium-sized enterprises are struggling. In fact for small businesses, migration is proving to be a greater challenge. According to CAIT, nearly 60% of small businesses in the country have been devoid of digital technology. Thus the basic challenge is that at a time when everything will be routed through digital technology under GST, how will this large number of traders comply?
Perhaps, keeping these apprehensions in mind, in its 18th June meeting the GST Council tried to ease the pain of transition by relaxing deadlines for new registrations and filing transaction-wise returns.
Praveen Khandelwal, secretary general of CAIT, has emphasised the need for education and empowerment of small businesses with basic fundamentals of GST and its integration with technology. He suggests that the government should enable trade associations to become ‘GST facilitation centres’. “Computer kiosks can also be installed in commercial markets, enabling traders to do compliance against a nominal fee,” he says.
On its part CAIT has advised trade associations across the country to make clusters of 30-50 traders and connect them with an accounting professional who would assist them in their compliance obligations. Besides this, CAIT has taken the lead in empowering the trading community to become GST-ready. It has started the ‘Mission GST’ initiative by organising a train-the-trainer programme that aims to make 10,000 traders ‘master trainers’ across the country.
Sourcing Hardware reached out to industry veterans to check if their enterprises were ready, and found that they are prepared for the rollout and expected the landmark economic reform to create a level playing field. Their common refrain was, “GST is expected to solve lot more problems and deliver great benefits to the industry.”
Anil Goel, Hettich India
The tax rates under GST for products and services will be at 5%, 12%, 18% and 28%. There are also products that will attract zero per cent tax. Taxation will be implemented more effectively, as the existing network of indirect taxes like excise duty, service tax, value added tax (VAT), central sales tax and octroi will be replaced by one single tax.
If you look closely you would realise that the existing rates are the same if we take ED and VAT together. However the new rates will certainly impact consumer demand adversely, as the end-customer will always be hesitant to pay 28% tax, as in the case of our industry.
Compliance & Support to Partners
It goes without saying that businesses will have to migrate from the present VAT, service tax and central excise environment, to a GST registration. While larger organisations have systems in place to handle the migration processes, it is a challenge for small organisations. What is noteworthy is that the government has acknowledged the challenge, and has accordingly tried to ease the pain of transition by relaxing deadlines for new registrations and filing transaction-wise returns.
On our part we are upgrading our IT infrastructure and systems so that there is minimum disruption during the transition phase. In fact our channel partners are already well aware of the developments, they are already working with technology partners to incorporate everything that is required to enable them to be GST compliant, and most of them are waiting for the real experience.
At the same time we are doing our bit to train our people, vendors and industry partners to understand the impact of GST on the industry.
I have always believed that ‘demonetisation’ was the trigger, and with the implementation of GST the process of formalisation of the economy will get accelerated. GST will create a unified national market and cut down the current bottlenecks that lead to higher transaction costs and hurt efficiency. The roll-out of this tax reform is expected to improve the flow of goods on account of reduction in turnaround time as VAT-related check-posts will be removed. This will make the entire supply chain far more structured and organised.
GST will enable national operators in building an efficient supply chain. As far as Hettich India is concerned, our system is already designed to handle GST-induced changes. In fact, we always balance the tax structure and customer service.
Impact on Demand
As I have said earlier, new tax rates are likely to impact consumer behaviour more and not so much the business structure. We are likely to see a contraction of demand. However, unethical practices will certainly reduce. The implementation of GST will also encourage local production, as imports will become costlier than domestic products by 10% at the end-consumer level.
Kirit Joshi, Spacewood
Impact on Furniture
The GST rate for furniture has been declared as 28%; it is much more than the anticipated rate of 18%.
The furniture industry is dominated by unorganised players, SSIs, small workshops which either pay no tax, or don’t come under the excise threshold. So they end up paying only VAT, which is between 12.5%-14.5%. Now these types of businesses will see a major impact on their ex-factory prices as they will have to charge 28% GST. Even though they may receive input credit on their raw materials, the net effect on their prices (net of GST) will be higher by 7%.
Coming to the organised sector, which either manufactures and pays 12.5% excise duty or imports and pays excise + SAD, in such cases the impact will vary depending on their business model. I anticipate that they will be impacted in the following manner:
- If they sell directly to consumers / projects, the impact is negligible -0.19%.
- If they sell through dealers / distributors against Form C, the impact is +1.2%.
- If they sell through branch transfer to dealer, and then to consumer, then the impact is +2.68%.
- E-commerce companies will have to shell out additional 1% besides 28%.
- Octroi will be abolished, and hopefully states won’t levy any additional duty to compensate for the loss.
Carrying Forward Inventories
For inventory of raw material and finished goods the dealer/manufacturer will have to establish excise constraint of the goods and will get the respective credits. In case of no proof, the GST credit will be 5% of the value of goods. So, by and large, even though the overall impact is very less, it’s much beyond the anticipated rate of 18%, which could have resulted in lower cost to consumer.
Alok Aggarwal, Ozone Overseas
Impact on Industry
The GST is a bold and revolutionary step by the government. It is the biggest tax reform to be implemented in several decades. Once it comes into force, it will eliminate the current ages-old conflicting and cascading taxation structures prevalent in India. It will certainly have a life-changing effect on India’s economy. It will simplify the tax structure as there will no longer be tax on tax, and create a ‘one market one tax’ regime.
There will be other benefits as well for organised players like Ozone. There will be a level playing field against grey market players as everyone would be taxed. GST will reduce a lot of administration costs and hassles too; hence there will be a smooth flow of goods and services from state to state.
Ready to Comply
Ozone is integrating the software required to become compliant. We are imparting training to our staff to ensure a smooth transition. We are also providing training and information about processes and compliance requirements to our channel partners. Since GST was in discussion and debates since long and finally got a go ahead in March, it allowed us enough time to understand its impact. Hence we could evaluate all cost implications on our products and services and have taken timely action accordingly.
Other than software changes, Ozone does not have to restructure its supply chain. All our distribution channel partners are legally compliant, before and after GST. Going forward, if need arises, we will be fully vigilant and take action for the benefit of our channel partners and end consumers.
Impact on Demand
We feel GST will have a beneficial impact on the industry in the long run. An overall increase in demand is expected due to the favourable macro environment being created, following the government’s business friendly initiatives. We believe that now there would be a shift in preference towards better quality and branded products, due to cost implications on the unorganised players. Ozone’s service, and its strong connect with channel partners, is likely to improve further and we expect to gain additional market share.