All You Need To Know About GST (Goods and Services Tax)

Posted on: 2017-02-09 03:25:37

The goods and services tax (GST) is expected to come into play from 2017 onwards with the constitutional amendment bill for the same having been passed by the President of India. It was passed in the parliament before the presidential approval came about. Rajya Sabha passed it on 3 August 2016 and Lok Sabha did the same on 8 August 2016. At least half of the state governments have ratified it as well. The Indian Government is committed to make sure that it is implemented by April 2017. As and when this tax comes into being all the indirect taxes applied on goods and services by the different states and the centre would be replaced by it.

What does this tax imply?

It is expected that when the goods and services tax come into being it will widen the tax base. Then, almost any and every good and service would be subjected to taxation – perhaps there would be no exemptions. It is expected that it will benefit Indian economy in a significant way and create a common market. Experts also feel that the effects that taxes normally have on goods and services would be mitigated significantly by this tax.

What will it effect?

It is expected to have an effect on a number of areas related to taxes. They may be enumerated as below:

  • Structure
  • Incidence
  • Computation
  • Payment
  • Compliance
  • Reporting
  • Credit utilization   

It is in fact being expected that the entire structure of indirect taxes would be changed because of the goods and services tax. Goods and services tax is also expected to have a major impact on each and every aspect of how business is done in India. This includes how products and services are priced, and how supply chains are optimized. Areas such as business income tax, tax compliance systems, and accounting are to be impacted as well.

How will business change in India after goods and services tax?

It is expected that after goods and services tax comes into being there would be greater advocacy for practices that are best for business. Companies would have no option but to gear up for the various changes being made to business processes. They would have to develop training teams and also come up with income tax systems that would help them to be compliant with the new system. These are undoubtedly going to be some of the most important areas.

How will companies cope?

As the government is gearing to implement goods and services tax by April this year, the first thing that companies need to do is become compliant with the new system. This will also give them some time to test the various changes that may happen to the system as a result of the introduction of the said tax regime. The extent of changes would also depend significantly on factors such as the size of area that the concerned company is operating in, as well as the sector and scope of operations.

The companies may need to have an action plan that follows a certain time limit, and they also need to be proactive with their planning. At the very least, they would have to understand what goods and services tax is and the effect that it can have on their business. They also need to come up with a roadmap that will help them with the transitional phase as well as the future scenarios.

How will the small and medium enterprises benefit alongwith others?

From the point of view of sourcing, companies would be able to source from other states since there would not be any tax-related hassle. In fact, it could prove to be rather viable. The smaller suppliers and vendors could see more opportunities open up for them. They would also not have to pay countervailing duty or any other alternate form of duty, alongwith special additional duty. These are normally charged in customs duty.

The companies may have to change the way they procure and distribute goods as a result of the changes being made to the tax system. Now that there is excise duty being levied on manufacturing, it may no longer make sense to go through with the present arrangements for distributing finished goods. They might also have to review the present structure of product flows and network structure. They may have to alter their prices as well and this could affect their profitability as well.

Since they would be saving on taxes because of GST products would have to be re-priced as well. This means that they may need to review their price markups and margins as well. Goods and services tax would also improve their cash flow and bring down the costs of inventory since the tax would have to be paid when the goods are being supplied or sold rather than when they are being removed from the factory.