1-year of GST: Here's how manufacturing sector reaps benefit from this regime

One year of GST: 12 months have already passed since the goods and services tax (GST) was rolled out by PM Narendra Modi. It took all of 16 years and more to ensure it was implemented and though critics panned many parts in it, the new tax regime was still one of the greatest single reforms to be implemented in post-Independence India. It unified India under a one nation, one tax regime. The potential to deliver explosive growth was thereby unleashed. A lot has changed since then, as many traders, businesses and taxpayers had to give away the previous format of indirect taxes. They were suppose to compile to this regime which had only five tax slabs 0%, 5%, 12%, 18% and highest up to 28%. When GST was launched the entire phase of any industry was undergoing new tax regime. NDA government had set up a GST council to look into the matters of this regime and their tax slabs.

Rahul Garg, Founder & CEO of Moglix, said, "It has indeed come a long way in a short span. All the fears of chaos in the markets with small and large traders struggling to cope with the new tax regime has come to a nought. Yes, there are niggles — from companies struggling with number of forms to be filled, comprehending the various forms, changes in the tax slabs for various items to delays in refunds et al. But the manner in which the government addressed problems to make the implementation smooth is commendable."

Garg added, "There was lot of relief and correction along the way for consumers as well, with various items being taken out of the peak 28% tax slab to an average rate of 18%. Not too surprisingly, GST implementation has been fairly smooth with all the stakeholders who are largely satisfied with the tax reform. The last 12 months have shown a strong determination by the government to iron out the kinks and ensure that problems are addressed and loopholes plugged."

Overall the manufacturing sector believes that GST will have a positive impact and will reap positive results in future. Garg lists out few factors why manufacturing sector reaps benefit from GST. 

Ease of movement of goods and services

For the manufacturing sector, one of the key things was easy movement of goods and services across the country. By replacing 17 taxes and various state levies with GST, a lot of friction points in smooth functioning of manufacturing and other businesses have been removed. This has led to cost reduction, lowering compliance burden, supply chain efficiency and an elimination of the cascading impact of the earlier tax regime. For instance, prior to GST, trucks spent almost 40% of their time in inter-state checks, paying octroi, submitting multiple clearance forms etc. With GST, this has been eliminated, thereby, removing considerable friction in the system and improving the ease of movement of goods across the country. All sectors be it manufacturing, banking, infrastructure, automobiles, telecom or pharma are benefiting from GST.

Introduction of E-way Bill

The E-way bill, an accompaniment to the GST has also eased a lot of pain points in logistics. The E-way bill, also called an electronic way bill, is a document created online under the GST system, when goods worth more than ₹50,000 are transported to a different state. This bill is required to be created prior to the shipping, and includes details of the transporter, recipients, the good and their consigner.

Input Tax Credit (ITC) driving efficiency

One big feature of GST is doing away with the cascading impact of taxes via ITC or Input Tax Credit. Lesser the cascading impact of taxes, the more efficient the tax system. ITC is the credit manufacturers receive for paying input taxes towards input used in the manufacture of products. All dealers are liable for output tax on taxable sales done in the process of his business.

Working capital is the lifeline of a business to carry out day-to-day operations. It has adverse effects on businesses if not managed efficiently which can even lead to closure of firms. Since the ITC claim accounts for 18-28% of the working capital, timely availing of the input credit has helped increase working capital for companies, thereby reducing cost of operation, directly increasing the net margins of your business, and strengthening the working capital.

Supply Chain management and capacity utilization

The overall impact of GST is building efficiency for businesses and tax collection as well. GST has helped manufacturers use capacity in a better way, consolidate warehouses and restructure supply chains. Manufacturers are also resorting towards vendor consolidation for enhanced supplier management and productivity. Prior to GST, manufacturers had multiple warehouses in different states to avoid multiplicity of taxes.

Use of technology, leading to better compliance and transparency

The entire process under GST – be it registration, return filing, tax payment and refunds is technology driven, leading to better compliance and transparency. Besides furthering the case for `Digital India’, GST has proved to be instrumental in the formalization of the economy and increasing the taxpayer base. The government has already hinted that as compliance and collection increases, there could be room to further rationalize the tax structure — making goods and services more affordable for the end consumers. Ofcourse for all this to happen, a lot more hard work needs to be done. Dispute resolution and administrative aspects have to be looked into to make it further easier for companies.

With the toddler getting into its second year, the industry will further hope for simplification in the GST process. For example, simple tax forms, more anti-tax evasion measures like matching of invoices to filter genuine input tax credit claims, reducing the number of items excluded from GST and reduction in number of tax slabs and so on.

At present alcohol, real estate and petroleum products like natural gas, aviation turbine fuel (ATF), crude oil, diesel, petrol are not under GST. Some of these, if not all, could be brought under GST. There is also room for reducing the number of item in the peak 28% tax bracket. Though this depends on the revenue position of the Centre and the state, the move will eventually help consumers.