GST is not just a tax reform but a business reform and in the near future it’s definitely going to change the way business decisions are made as far as selecting vendors and procurement of goods/services are concerned. After the introduction of this tax reform, India will be one market and there won’t be any entry barrier as far as tax exemptions and tax rate are concerned. There won’t be any requirement for check posts and the entry tax will get merged in GST. Also, the cost of goods and services in several cases is expected to reduce as the cascading effect will be eliminated as a result of non-credit among prevailing indirect taxes. This would need you to rethink your policy related with prevailing vendor base and procurement. The introduction of GST would have certain impact on Vendor management that can’t be ignored and the reasons are given below:
Cheaper procurement from registered vendors
Creating unified credit mechanism across the supply chain till goods/services are consumed entirely is the basic structure of GST. This is only possible when the goods/services are procured from the registered vendor. On comparing the prices of a registered and unregistered vendor, one can easily find the price of registered vendor to be cheaper. Now the reason is quite simple; the vendor who has a seamless Tally GST integration and has registered under the new tax system can easily pass on the GST paid on the good he procures to be supplied to you. However, this will not be the case for unregistered vendor.
GST Benefits would not be passed by unorganized vendor
The ‘unorganized vendors’ is another category of vendors which needs to be dealt with effectively. Here, the vendors could be registered; however, they might not want to pass on the decrease in GST rate. In order to tackle this, the companies using Tally services need to engage with their vendors in this sector early so as to understand their readiness for this tax system. Also, any further delay or blunder in depositing GST by the vendors would result into several settlement issues.
Strategy for Selecting the Vendor
Till now, the strategy for the selection of vendor primarily relied on the benefits of indirect tax as unified credit wasn’t allowed between State and Central indirect taxes. Under this tax system, the entire country would be a single market and rates of taxes would be similar. In addition to the quality and cost of goods/services there are some more criteria for the selection of vendor, they are:
- Compliance rating of vendors need to be checked and some time will be required before the compliance rating begins to reflect in the public domain
- Logistic cost for supply of goods/services
- Category of GST registration of vendor
To conclude, it’s high time that you stand up to take control and evaluate the strategy regarding the management of vendor to protect your business from potential risks.
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