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View Points

GST Bill Impact of GST on manufacturing sector

Jan 23, 2017

significant tax reforms post-independence and has rightly attracted heightened interest from all stakeholders. It is expected to replace our current complex Central and State indirect taxes to create a common market for India with a seamless indirect tax regime. GST will be transformational and the implication on the industry extends well beyond tax. It will affect every part of business right from financial reporting, tax accounting, supply chain, technology enablement and contracts redesign. Training people within the company and its business ecosystem will also be fundamental for the readiness of the new regime. The viewpoint section discusses the impact of GST on the manufacturing sector.

“GST implementation will enhance compliance”

- Shilip Kumar, Country President,Henkel Adhesives Technologies

What will be the impact of GST on supply chain network and processes in the manufacturing sector?

The structure of the supply chain is influenced by differential taxes based on geographical location. Elimination of multiple state taxes will encourage companies to consolidate their warehouses instead of having warehouses in multiple states. On implementation of GST, the major consideration for warehousing would be cost and customer service; that is, the taxation element would no longer be a factor to contend with.

How do you think the GST will aid the ‘Make in India’ initiative?

‘Make in India’ is an initiative to make India a manufacturing hub. It has been successful in attracting many foreign companies to invest in India. For carrying out businesses efficiently, there has to be a clear and standardised tax regime, which GST would be providing in contrast to the current uncertain and unpredictable indirect tax regime. Moreover, exports will be Zero rated whereas imports will attract GST to encourage manufacturing in India. GST implementation will also enhance compliance making it a level playing field for all manufacturers.

What are the short-term and long-term objectives that the manufacturing industry in India can meet with the implementation of GST next year?

With GST being implemented next year, there are possibilities of price revisions across value chains of the manufacturing sector. This will boost the economy. In the long term, manufacturing and warehousing decisions would be based entirely on the merits of the business case with taxation playing no role in such decision making.

What would be your recommendations to get the most from the GST implementation?

GST should be simple and transparent (as few rates as possible / no ambiguity in classification) and its administration needs to be corruption-free. This will help remove the current shortcomings of the supply chain owing to the multi-layered policies. GST should not be only investor or business friendly but also consumer friendly. Thirdly, Goods and Services Tax Network (GSTN) should be able to successfully manage the burden of crores of tax payers logging in at a single point in time.

“GST will take the unnecessary cost out of the supply chain”

- Dr Wilfried Aulbur, Managing Partner & CEO, India, Roland Berger

What will be the impact of GST on the supply chain network and processes in the manufacturing sector?

I believe that businesses will be able to move from a tax optimal supply chain to a cost optimal supply chain in line with what is the practice in developed economies, such as Europe. This will certainly take the unnecessary cost out of the supply chain, improve material flows as well as lower the overall cost of goods sold.

How do you think the GST will aid the ‘Make in India’ initiative?

The complicated and cascading tax systems are a detriment to investments. In my opinion, a single national market with a much simpler tax structure will boost the investments in the country and also lend a support t the ‘Make in India’ campaign by the Prime Minister of India.

What are the short-term and long-term objectives that the manufacturing industry in India can meet with the implementation of GST next year?

The objective for most manufacturing companies will be to restructure their supply chain and manufacturing processes. This is because the current processes might not prove to be efficient, post the GST implementation. In addition, governments and businesses will have to work in symbiosis for a successful implementation of this tax reform and take it ahead.

“Reduction in taxation could be as high as 5 to 10 per cent”

- TK Ramesh, Chief Executive Officer, Micromatic Machine Tools

What will be the impact of GST on the supply chain network and processes in the manufacturing sector?

The impact is expected to be positive. Incidence of the total taxation expected is to be reduced. In the machine tools sector, reduction in taxation could be as high as 5 to 10 per cent in some cases, if the GST is at 18 per cent.

How do you think the GST will aid the ‘Make in India’ initiative?

The GST implementation will aid the ‘Make in India’ initiative by reduction in costs, increase in transparency and reduction of departments to coordinate with, although initially, there will be some costs for learning, systems and infrastructure.

What are the short-term and long-term objectives that the manufacturing industry in India can meet with the implementation of GST next year?

I believe that there will not be any short-term objectives that can be achieved. On the other hand, there will be disruptions and much learning that will need to be assimilated. Long-term competitiveness will also increase. Transparency will be better and as a result, the demand will grow.

What would be you recommendations to get the most from the GST implementation?

To get the most from the GST implementation, we must map our entire transaction chain, understand its impact and optimise the chain. We also need to get expert help and recalibrate our IT systems to this optimisation. Businesses that still believe in doing things the manual way will face difficulties and their unforeseen costs will increase.

“GST will simplify the complicated indirect tax system in India”

- Rajesh Nath, Managing Director, VDMA India

What will be the impact of GST on the supply chain network and processes in the manufacturing sector?

The final structure of GST is not yet set. However, a model Goods and Services Tax Act (Draft GST law) was released on June 14, 2016, for public comments. The Draft GST law prescribes that both the central and state governments would levy GST in parallel on supply of goods and/or services where such supply is made within the state. The tax to be levied by the central government would be referred to as Central Goods and Services Tax (CGST). The tax to be levied by state government would be known as State Goods and Services Tax (SGST). In case of inter-state supply, an Integrated Goods and Services Tax (IGST) will be levied, which would be collected and administered by the central government. Imports into India would be subject to IGST and Basic Customs Duty. Customs duty in the form of Basic Customs Duty (BCD) on import of goods into India and Research & Development Cess on import of technology into India will continue to apply.

How do you think the GST will aid the ‘Make in India’ initiative?
The current indirect tax regime is clearly one of the biggest hindrances which have adversely impacted the domestic manufacturing sector as well as flow of foreign investment to the sector and introduction of GST is important to alleviate the situation. GST would reduce the cost of manufacturing both from a tax perspective as well as on the compliance front. It will also boost the ‘Make in India’ campaign as it makes India a single large market by freeing it from the current mess of several complex levies along the state lines. With the implementation of GST, CST would be eliminated, most of the other indirect taxes would be subsumed into the GST, and because the GST would be applied on imports, the negative protection favouring imports over domestic manufacturing would be eliminated.

What are the short-term and long-term objectives that the manufacturing industry in India can meet with the implementation of GST next year?

The new GST will simplify Indian indirect taxes to a great extent. Unclear and heavily debated qualifications such as ‘manufacture’, ‘sale’ and ‘provision of service’ will lose their relevance. This will also reduce the issues of double taxation. The highly complicated customs duty structure with several duties such as BCD, CVD and SAD being levied and calculated on each other would get cleared out. Under the GST regime, import of goods would attract BCD and IGST making the structure simpler. The availability of Input Tax Credit of IGST to importing resellers would significantly improve the tax cost in the supply chain.

What would be you recommendations to get the most from the GST implementation?

The Indian political system witnessed a historic moment on August 3, 2016, when the Constitutional (122nd Amendment) Bill 2014 (Constitutional Amendment Bill), which is the enabling law for implementation of Goods and Services Tax (GST) was unanimously passed by the Upper House of the Indian Parliament. The passage of the Constitutional Amendment Bill is just the beginning phase. The state governments will have to work very efficiently to get this off the ground. With the government assuring states full compensation for loss in revenue for the initial 5 years, this unified tax is not just a golden opportunity for businesses but it is a great moment for the political parties and bureaucracy to make an effective law to generate revenue and curb wanton corruption. The ball is firmly in the government’s court. Next steps will decide whether we have a real powerhouse of a GST or just another law.

“Industry is fed up of ‘cess’ and decimals of taxes”

- Raj Singh Rathee, Managing Director, KUKA Robotics India

What will be the impact of GST on supply chain network and processes in the manufacturing sector?

GST is expected to add speed and ease the movement of goods in the supply chain network in the machine tools sector in India.

How do you think the GST will aid the ‘Make in India’ initiative?

In general, every positive step aids the various manufacturing initiatives. We need more factors to work in the right direction for the ‘Make in India’ initiative to be successful.

What are the short-term and long-term objectives that the manufacturing industry in India can meet with the implementation of GST next year?

Objectives and expectations vary for every industry or even individual. The short-term objective will be the sharp rise in confidence that the government is serious about making speedy improvements to support the manufacturing industry. India can become a sustainable manufacturing hub to cater to the export as well as in-house consumption in the long-term. There are many more variables linked to this success, apart from the GST.

What would be you recommendations to get the most from the GST implementation?

I believe that there are two major achievements of GST that are noticeable by any companies till now. These are: a) moving to a completely digital process (free from submitting papers) and b) common process all over India making it easier for the companies with offices across states. There are also some improvements that are expected. Firstly, the industry had expected a ‘GST’ from the government. However, what we are getting are the ‘IGST’, ‘CGST’ and ‘SGST’. The government is pushing the responsibility of distribution of taxes to the industry. There should a single ‘GST’ with a rounded-off rate for every category. The industry is fed up of the ‘cess’ and decimals of taxes.

Similarly, the complex credit of these various GST is not required with GST Secondly, in the short term – with the present state of GST – software & financial consultant companies are going to get a boost in the business at the cost of the manufacturing industry. This can be avoided by simplifying the GST. Thirdly, what will not change are the people that the industry will have to deal with after GST. It is expected that honest people will be heading the GST. Finally, with respect to the various processes and dates of implementation, the state and central governments are not working in the interests of the industry. There seems to be a lack of people who would work for India as a whole,keeping the state’s and other interests at a backstage.

Image Gallery

  • Shilip Kumar,Country President,Henkel Adhesives Technologies

  • Dr Wilfried Aulbur, Managing Partner & CEO, India, Roland Berger

  • TK Ramesh,Chief Executive Officer,Micromatic Machine Tools

  • Rajesh Nath, Managing Director, VDMA India

  • Raj Singh Rathee, Managing Director, KUKA Robotics India

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