View from India: Goods and Services Tax unifies India into one market
India’s biggest tax reform, the Goods and Services Tax (GST), which became operational on July 1 2017, is set to replace around 20 federal and state levies. This historic reform will unify a country of 1.3 billion people into what is being described as one of the world’s biggest common markets.
Narendra Modi, India’s Prime Minister, described GST as the path-breaking legislation for New India. A revolutionary taxation system for the digital India, he said, in his speech delivered at the Parliament Central Hall. The entire country will have a similar tax structure, uniformly implemented across India. There will be “One Nation, One Tax” and the system will be executed in a standard manner in all the states.
What is important is that since there will be a uniform tax structure, foreign investors have better investment options. Often global investors have zeroed in on states where the tax structure was comparatively lower than other states. This will no longer be the case, as tax will be the same throughout the country.
Again, when seen from the view of uniform tax, those states which were tax-heavy will now see better incomes due to a regulated tax form. Even those economically backward states are projected to get a boost. In that sense, the overall economy is expected to get a boost in the long run.
Now that the Lok Sabha has finally passed the Goods and Services Tax Bill to unify the country, it’s obvious that there’s a mixed outlook towards GST’s impact on various industries. Let’s look at the road ahead.
With GST, India has now become ‘one market’ and the ease of doing business will improve immensely. “Large enterprises, SMEs and end consumers, everyone will benefit from a simplified tax regime,” said Vikrant Yadav, country manager, India, GreyOrange Pte Ltd, a global robotics company that designs, develops and deploys automation solutions across e-commerce, retail and CPG companies in India and abroad.
“The maximum impact of the implementation of GST will be on the supply chain, as this will enable companies to finally optimise their supply chain networks based on scientific principals and logic, instead of disparate tax structures across the country which has been the case so far,” he added.
GST will replace a host of indirect taxes with a single, unified tax. Specific to the manufacturing sector, currently taxes are levied based on triggers such as ‘manufacture under central excise’, ‘sale under VAT’ (value added tax) and ‘provision of service under service tax’.
“With the implementation of GST, these three triggers will converge into one, i.e. ‘supply’ under GST. This means that tax will be levied if a product has been supplied or a service has been sold (single trigger), instead of multiple triggers,” Yadav said.
Currently, businesses design their supply chains to save taxation. For example, an e-commerce company would like to have its warehouse in each of the states where it sells its products, so that there are no inter-state transportation taxes. However, operating many small warehouses means that the size and capacity of each of these is very small. This means that there is not much scope to take advantage of automation. Now, with GST, companies can look to have a large, state-of-the-art, automated warehouse. For a company like GreyOrange, this is where its products play an important role- to automate the warehouses in order to make these more efficient and accurate.
GST is expected to have a positive impact on the electronics industry and is definitely a more preferred regime than its preceding one. Before, there were many levels of indirect taxation, which were subjective. As a result, they could be interpreted differently. “With GST, everything has moved online and there is no manual interface, which will also help in transparency. It will help in the removal of the cascading effect of taxes. In the short term there may be temporary hiccups, but it is a great move and both the industry and consumers will be benefited in the long term,” explained M N Vidyashnkar, President, India Electronics and Semiconductor Association (IESA), the premier industry body for Electronics System Design & Manufacturing (ESDM) in India.
The implementation of GST will ensure ease of doing business as the industry has been facing various challenges due to multiple registrations in each state. “With the introduction of GST, cost of warehouses and logistics will get reduced and manufacturer will pass on this cost reduction benefit to the consumers. The overall reduction in prices will boost the electronics demand in India which will in turn boost the manufacturing need,” added Vidyashnkar. With around 70 mobile phone companies opening manufacturing facilities in India in the last two years, this will be a significant motivation to expand their operations in the country.
Prices on all iPhone models have been slashed and price cuts range anywhere between Rs 900 and Rs 3,900, depending on the model. Prices on desktop Macs and MacBook laptops have also been lowered. However, service tax on the phone bill has increased along with Internet packs and call rates.
The scenario in the computer industry looks good. “The Indian PC industry will see a boost in demand for devices as India gets ready for GST implementation. Each business needs at least one device: a desktop, laptop or a tablet, which presents a huge opportunity for PC makers to aid small businesses,” reasoned Pankaj Harjai, director, small and medium business, Lenovo India. “Lenovo’s comprehensive range of GST-ready solutions across form factors, ranging from notebooks to all-in-one PCs and tablets will enable SMEs to run their business smoothly and bring improved productivity. Our main task is to guarantee that our channel partners and end consumers are ready for the GST rollout.”
The GST Council has presented a four-tier GST tax structure, under which the laptops and desktops will be charged at 18 per cent tax, while other components like monitors and printers will be taxed at 28 per cent.
“Post-July 1st, there are possibilities that customers may look forward to buy amalgamated products like desktops and laptops as the tax charged on these products is 18 per cent rather than buying monitors and other components individually at the 28 per cent tax range,” said Chandrahas Panigrahi, CMO and consumer business head, Acer India, a leading laptop and PC player in India.
“At the same time if we look at the enterprise side of our business, we see the graph of PC sales going higher in the coming months. GST IS drawing Indian businesses into digital economy, which is further pushing traders and business owners to brace IT infrastructure, in order to fulfill the compliance needs for GST.”
The company has been working towards developing GST-enabled machines; besides introducing a range of desktops, laptops and AIOs, which are GST ready. “We see this as a huge opportunity to assist small businesses and trades in adopting this change and growing with economy by utilising technology at its best,” he felt.
Auto companies like Maruti, Toyota and BMW have lowered their rates. Yet, individuals need to be prepared to shell out more money for hybrid vehicles. It’s a steep climb to reach out to legendary bikes like Harley-Davidson and Triumph, which are now much more expensive than before.
According to CRISIL, India’s leading ratings agency, GST puts organised jewellery retailers on a strong platform. GST regime will provide a fillip to organised jewellery retailers by weaning business away from the unorganised players, who currently account for three-fourths of the industry’s annual revenue, estimated by CRISIL at about Rs 2.85 lakh crore.
GST compliance is an effort-intensive process and will be more cost effective for the organised retailers because of their large scale of operations. In addition, they operate largely from leased premises and under GST, they will benefit from set-off of tax paid on rent.
“Increasing share of sales under the gold deposit scheme and higher utilisation of the cost-effective gold-on-loan scheme enables organised jewellers to control their interest costs, which is supporting their profitability and credit metrics. For instance, over the past three years, the ratio of total outside liabilities to tangible net worth for the top 6 CRISIL-rated players, accounting for almost 12 per cent of industry revenues, has improved to 1.6 times as on March 31, 2017 from 1.8 times as on March 31, 2014,” said Rishabh Jain, Associate Director, CRISIL Ratings.
The Make in India initiative is projected to get a direction through the introduction of GST. “As GST would break down the barrier of state tax regulations, companies in various sectors would be able to create manufacturing hubs across the country and can focus on pan-India operations looking from an overall economy perspective, I believe that a simpler tax structure like GST can increase the number of tax payers, which help government to generate revenues,” explained Panigrahi. With the removal of layers of taxes and cascading effect, it will further encourage compliance and help widen the tax base.
While GST has rolled out, the challenge now lies in making companies GST compliant. As per a press release issued on July 4, Exotel, one of India’s leading cloud telephony companies, announced the launch of its new campaign that focuses on helping ERP and Tax Accounting Software companies manage leads and make the process smooth and efficient. As lawmakers are in process of clearing out decks for the rollout of GST, Tally along with 33 other companies has recently been appointed as GST Suvidha Providers to help businesses transition to new regime.
According to industry reports, less than 10 percent of SME’s are in a GST-ready position. It is undoubtedly a busy time of the year for these companies. The one problem that these partners face right now is, missing out on potential customers due to missed calls or a busy tone. Exotel’s cloud telephony services will help these companies manage the high volume of incoming leads from companies that would like to become GST ready.
“With the new GST rules rolling out, we anticipated that there will be disruption in businesses as many SME’s are unlikely to be GST-compliant and the ERP and tax accounting software companies would be receiving numerous calls in a day,” said Shivakumar Ganesan, CEO, Exotel, speaking about the campaign. The cloud telephony enables efficient functioning. Every customer who calls will be greeted with a professional Interactive Voice Response (IVR) greeting and connected to the right person, whether he is in the field or in office. The reseller’s service will be equivalent to a large company irrespective of the size. It does not involve capital investment and facilitates IVR automation.