GST: A shift to Smart Taxation System

GST Journalbranding

The excitement following the passage of the Goods and Services Tax (GST) Bill by the Indian Parliament on August 8, 2016, continues to resonate, as optimism both in the India Inc and in the general public grows. For one, this is an idea that has taken nearly sixteen years to come to fruition. While the implementation is currently slated for April 01, 2017, the transition from vagueness to clarity and resolving of political differences to support this development are major factors for its smooth and successful implementation.

The benefits and the expected impact may be couple of years away as implementation, technological glitches, and most importantly, the final GST rate to be finalized. However, even in its present form, the general consensus is that it will add 1-2 percent to the National GDP. It is being viewed as an image revival of the business environment in India from the global perspective as Ravi Kirpalani, CEO, Thyssenkrupp India expresses "The fact that there is a political consensus to pass the GST bill, will also improve global confidence in India as an ideal investment destination." Ashok P. Hinduja, Chairman, Hinduja Group of Companies, opines, "GST will be the biggest reform since 1991, which will make India an attractive destination for foreign investments."

Ease of doing business
Several sectors, including Manufacturing and Logistics in particular, are looking forward to lower production costs. With the application of uniform taxation, the Logistics and Warehousing Sector is keen to see their own efficiency improve with a boost in supply chain management and reduced transit-time. K. Ravichandran, Senior Vice President, Co-Head, Corporate Sector Ratings, ICRA Ltd. "Implementation of GST will be positive for some of the port logistics players, as it will lead to a realignment of their warehousing and supply chain requirements". Vipin Sondhi, MD and CEO, JCB India Limited summed up the passage of GST in Rajya Sabha as a landmark reform and a critical milestone towards Free Trade within India. He adds, "It will also give a massive push to Make in India especially MSMEs. The ease and cost of doing business will receive a fillip and the width of the tax base will be enhanced". Anand Sundaresan, Vice-Chairman & Managing Director, Schwing Stetter India Limited, says, "We are sure that this will improve our efficiency, reduce unnecessary administrative efforts, and could also increase profitability."

Lowering of interstate barriers is another expected benefit. Prakash Tulsiani, Executive Director & Chief Operating Officer, Allcargo Logistics comments "GST Bill is set to revolutionize logistics with unified and simplified structure versus multiple taxes at various levels. It will lower the inventories and working capital; reduce documentation, improve asset utilization, ensure higher turnaround time and efficiencies. We expect the industry to move away from pure vanilla warehousing needs to contract logistics."

Technologically speaking
Connecting over-expectations of clearing current ambiguities and facilitating smoother business processes, the ICT sector too has welcomed a 'transformational' legislation, as termed by Sunil Mittal, Chairman, Bharti Enterprises. Increase in GDP would also encourage job creation. "The development will address the ambiguities of the current indirect tax landscape, proving beneficial for the economy at large", hopes Bhaskar Pramanik, Chairman, Microsoft India. Besides a stronger economy, another positive likely with overall tax-reduction is cheaper consumer products, possibly triggering increased consumption. However, the final rate would determine the increased affordability of both consumer products and the services for the Digital India vision.

A concern for the ICT sector and elsewhere would be transference of responsibility of tax compliance and remittance to customers making them eligible for input credit, a quoted viewpoint of Bharat Goenka, Co-Founder & MD, Tally Solutions.

Service with a smile, still possible?
On one side, entertainment segment, especially Multiplex companies, which currently are being taxed under three separate heads, will benefit under the single umbrella taxation. "The Indian cinema industry has been taxed as a vice by a host of regulatory bodies including local, state and central authorities at extremely high rates, which have stunted the growth of the industry. We are hopeful that subsuming of all these taxes under GST will ease the pressure on the industry and allow it to grow to its full potential" is the positive outlook of Alok Tandon, CEO, INOX Leisure Ltd., said. On the other hand, the hotel and hospitality sector also has its reservations. The higher rate of GST proposed for aerated beverages, a major part of the bill, especially in fast serve restaurants and the fact that liquor is left under the States is likely to impact consumers feels Rahul Singh, Founder of Beer Café, and Honorary Secretary, National Restaurants Association of India.

The retail sector, which is currently in a sluggish mode, may hope to recover better margins as costs go down. "Implementation of GST is likely to reduce transaction cost of doing business. I am confident that once implemented, it will not only bring relief to the consumers, but also help the retail sector in a big way" hopes Krish Iyer, President & CEO, Walmart India. The ecommerce players are encouraged with the possibilities of strengthening seamless logistic networks with the free movement and supply of goods countrywide. The expectation is elimination of border barriers of especial concern to surface logistics services.

Construction Credit
Builders and developers are encouraged with the scope of free input credits on GST paid for services and goods purchased. This should reduce overall costs and allow the benefit sharing with customers, particularly commercial property, where inputs credits for construction services can be balanced against lease rental applicable GST. In the view of Mr. Navin Makhija, Managing Director, The Wadhwa Group "There will be a drop in raw material prices, which in turn may create enhanced demand as it is likely to be passed on to the consumers directly. This, in turn, may see some renewed interest of buyers towards buying properties". Concurring with this thought Parveen Jain, President, National Real Estate Development Council (NAREDCO) said "The enactment of this law will single-handedly solve many of the challenges faced by the real estate sector and help in pulling the sluggish sector out of its long slumber." "However, with the stamp-duty remaining with the states the benefit may reduce. "Exclusion of Stamp Duty charges from the GST is a setback, as home buyers will have to pay stamp duty too other than GST. Still, the benefit may go to home buyers if lower rate of GST is levied. Also it is very important that GST be implemented at the same rate in all the states to bring in uniformity", specifies Deepak Kapoor, President CREDAI Western U.P. The availability of credit more conveniently has Neha Hiranandani, Director, House of Hiranandani satisfied. She says "It would be a harbinger of change for the real estate sector which is currently plagued with a myriad of indirect tax issues both at the centre and state level. We hope that the bill brings in a more comprehensive and uniform tax structure that will ensure greater transparency in the sector."

Will the GST be a game changer?
From the view point of ease of doing business, especially for the manufacturing sector it will score positively. Clearing tax hurdles conveniently will benefit most sectors and encourage MNCs to conduct their business from India. Two primary aspects and possible sticking points are Firstly, the rate itself: Secondly, the implementation process. In an interview Ajit Gulabchand, Managing Director, Hindustan Construction Company expressed concern "Implementation of GST Bill will require a huge electronic platform on one hand and changing the practices of filing returns on the other. There is a very complex structure that would be required, which must work with the system integration, in a seamless manner for it to succeed," he said.

The roll out, implementation and teething period are all going to be dealt with before the full benefits, or otherwise are realized – that is the reality. Meanwhile, the motivated unification over a governance issue, clearly a game changer and a Swachh message going out.

"One Nation, One Tax"

GST is a destination based tax that is, the taxing right is with the state in which goods or services are ultimately consumed by the final consumers. It is the greatest Indirect Tax reform to present the country as a single market with a single tax system consonant with the provision of Article 301 of Part XIII of the Constitution of India "Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free".

Mooted in 2000, it has taken sixteen years for passing of the Bill. India shall adopt the Dual GST Model where both the State and the Centre levy the tax. This model is operational in countries like Canada and Brazil.
  1. Sale within the state will attract State GST (SGST) + Central GST (CGST)
  2. Sale outside the State will attract Integrated GST (IGST)
The effect will be on Indirect taxes like Value Added Tax (VAT), Sales Tax, Octroi, Luxury Tax by applying a single rate through a single tax. There is expectation that it would contribute up to 2 percent of the national GDP.

The ultimate aim is to improve compliance, sort out administrative tangles through uniformity in tax computing right from the input for raw materials.

Vipin Sondhi

"The passage of GST is a landmark reform. A critical milestone towards Free Trade within India. It will also give a massive push to Make in India especially MSMEs. The ease and cost of doing business will receive a fillip and the width of the tax base will be enhanced."
Vipin Sondhi, MD and CEO, JCB India Limited

Anand Sundaresan

"We are sure that this will improve our efficiency, reduce unnecessary administrative efforts, and could also increase profitability."
Anand Sundaresan, President, iCEMA.

Anshuman Magazine

"This is a major tax reform for our economy, which will transform India into a single market. The passage of this Bill is likely to positively impact the real estate sector, which has linkages with over 250 ancillary industries. Unified taxation will also infuse the much needed transparency into our taxation system."
Anshuman Magazine, Chairman, CBRE – India and South East Asia

Niranjan Hiranandani

This is a major reform undertaken by the government and it will be impacting the economy positively. If managed well, this alone has potential to add at least 1% to India's GDP growth. Capping the rate of tax is good. However, if the rate is increased later then it will prove to be tricky. Duality of tax authorities at state and central level is not a happy situation. If the states continue to levy stamp duty, other local taxes like labor cess and municipal taxes then it will add burden to home-buyers' cost.
Niranjan Hiranandani, Founder & MD, Hiranandani Group

Rajat Wahi
"The introduction of GST would positively impact the entire value chain of the consumer markets sector. A majority of consumer companies which are looking to rationalise their supply chain cost will benefit from a uniform inter-state GST which will ease the movement of goods across states, encourage business expansion and facilitate easy procurement. The manufacturers and retailers stand to benefit with GST implementation, in terms of reducing their supply chain logistics costs, as it would result in lessening the numbers of their warehouses."
Rajat Wahi, Partner and Head, Consumer Markets, KPMG

Anshul Jain

The clearance of the Goods and services tax (GST) Bill in the Rajya Sabha is a laudable step that would remove cascading taxes and make India's manufacturing sector more competitive.
Anshul Jain, Managing Director, India, Cushman & Wakefield

NBM&CW September 2016

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