GST: Game Changed Game On

Published in Business Goa

The text books warn every aspiring manager or entrepreneur that Government policy effects business decisions. The new Goods and Services Tax (GST) is not a tinkering in rates or a small course correction, it is a new tax law. There is nothing like it before, it has been in the making for almost 11 years and finally rolled out on 1 July 2017. A landmark day in the history of India for sure. Every industry will have to rework not only pricing but marketing, distribution and manufacturing strategies.

The good part is that India is a IT power house and the key element that will sustain this ambitious project is the GST Network. Without this network it would have been impossible to manually operate the GST law. The network is a public private partnership. Politics apart everyone knows that GST makes great sense.

In the old days there used to be businessmen who listened carefully to the budget speeches and whichever product or commodity had the highest tax rate, that was the business they would dabble in. Their logic was simple, the higher the tax rate the better the profit as they operated under the tax net. Slowly the country shifted to standard rates and did away with the obscene high tax rates, but these businessmen continued to fly under the radar and avoid paying tax with or without the blessings of the tax officials. The GST regime will make it almost certain that these type of businesses will be extinct. From a legitimate tax paying point of view not a bad idea. They will now have to rethink their strategy and become tax compliant.

Every business will have to think differently and the GST regime will throw up opportunities which were not worth  pursuing in the Central Excise/VAT regime that has just ended. The octroi agents at the check nakas will be looking for jobs as there will be no check posts, transport turnaround will be faster and thus sooner than later, cheaper.

All companies will now first and foremost restructure their selling price. Initially it will factor only the indirect taxes, eg: in an interstate purchase is part of the bill of material, then the input landed cost changes because the CST of 2% which was a cost earlier will now be replaced by IGST (intergrated GST, payable on interstate purchases) for which credit can be taken. Then on “supply” (no more using the word “sale”) one has to add all charges eg packing transport discount etc to arrive at the transaction value on which GST is applicable. In 80% of goods and services the GST rate is 18% which is lower than the min of 25% under old regime.

Later, as market forces and competition kicks in the Companies will begin to factor the additional GST credits previously not VATABLE into their costings and lower prices to maximise supply. Eg: previously CE/VAT paid for purchase of an air-conditioner was not VATABLE, now you can take credit, The same applies to car maintenance or insurance.  It is market forces and not the anti-profiteering clause in the GST Act that will bring prices down. Unfortunately the law allows for a committee of Babus to check if the benefits of GST are passed on to the consumer, with a tinge of sadness this keeps the door open for interference which is done away with for the most part. No interface with any official only through the returns which are filed online.

This means that every Company will first of all become computer savvy, no hand written bills which are given to a CA to enter once a year or quarter, now it will be monthly and that too by the 10^th the supply details have to be uploaded in the online return GSTR1. So, huge opportunities for those involved in computers/software and maintenance as usage will increase manifold.

Today most net savvy users familiar with online shopping know that before closing a deal they need to check the rating of the supplier, if it is bad they will avoid making a purchase. Similarly if a dealer does not file his returns on time or pay his dues by 20^th of the succeeding month etc his rating will be effected(this is still pending though). A customer can use the dealers GSTIN and check his rating, if it is adverse he will avoid that dealer because buying from him could mean his ITC (input tax credit) will be possibly effected and he will have to wait longer if disallowed. So every dealer will have to focus on ensuring his rating is top notch, surely will be a pleasure dealing with good suppliers.

In the old regime if one sold goods interstate, the tax rate was 2% against a “C” form. Invariably post the transaction everyone slept, three years later the supplier at the time of his assessment would realise that the form was not available, he had to then begin the followup to get the form, if not he would have to pay the difference in tax and interest/ penalty, a heavy burden wiping out any profit made in that transaction in the first place. To avoid this situation dealers avoided interstate sale. Now the country in your market, supply to any part of the country and the tax rate is same no forms, no additional levies viz: octroi entry tax etc. Ease of doing business at the fore, so dealers have to rethink ways to do business, government has made it easy.

Manufacturer's will now have to think if C& F agencies are necessary, there is no facility for stock transfer. The good transferred to a C& F will be GST paid, this will be realised only when the material is sold and payment received, this working capital management will become key. The other advantage of a C& F was the company had to collect just one “C” form, now with no forms why pay an intermediary say 6% commission? Food for thought.

All in all, GST will be a harbinger of change in the way business is done in India for the better.