GST is a Goods and Services Tax that has been put forth by the Government of India and will be implemented from 01st July 2017. Experts opine that this tax reform will have a positive impact on all types of businesses provided they adhere to its terms and conditions. With the ‘Make in India’ campaign in full swing since the last couple of years, what it has done is given a huge boost to India’s position as a manufacturing hub on the world map.
Industry experts also say that by the end of 2020, India will become the 5th largest manufacturing country. However, more importantly for the businesses, the tax reform will do no less than wonders for the manufacturing industry. With the entire industry keen to learn Tally GST as most of the companies work with Tally ERP 9 that can be integrated with GST later, the significance of this tax reform has grown a lot more in recent period. Sao how will the GST impact the manufacturing sector? Would it be in a positive way or would it leave the sector in dire straits? Let’s explore.
Impact of GST on Manufacturers
Cost of Production will go down: Under the current tax regime, a manufacturer is not able to claim tax credit on the central sales tax paid on the inter-state procurement’s. Likewise, local body taxes, Octroi, entry tax, etc. are some of the other non-creditable taxes that add to the cost of production. Since taxes are cascaded, the problem doesn’t end in the post manufacturing stage as well. Even the dealers, distributors and retailers aren’t able to claim tax credit on their input, which eventually leads to an increase in the cost of goods for the end user. One of the greatest benefits of GST to the Indian tax reform will be the decrease in the cascading effects of taxes which will eventually result in the cost of production going down.
Supply Chain to be restructured based on economic elements: As far as the current regime goes, supply chains and businesses have been usually designed based on the suitability of paying tax. With the influx of GST, a manufacturer can at last concentrate on what is vital; decisions on warehousing and business efficacy can be taken on operational as well as economic factors such as locational benefits, costs, proximity to vital customers, etc.
Free from Dual Control: In the current tax regime, the manufacturer has to face dual control, i.e. he is burdened by the Centre for Excise duty while by State for VAT. After GST too, there was a concern of dual control in the form of CGST and SGST, however, in recent months, the government has come to terms with avoiding dual control. Under the GST regime, it will be the state authorities that would scrutinize and audit those with a turnover of INR 1.5 crore or less, estimated to be around 90% and the remaining 10% would be tackled by the Centre.
On the whole, GST regime is touted to be a savior for manufacturing industry in more ways; the most vital is the ease of doing business with significantly reduced cost.