The Goods and Services Tax has been implemented to revive the Indian taxation system. The GST Act was passed in the Lok Sabha on 29th March, 2017, and came into effect from 1st July, 2017. Since law-making and implementing is a process of continuous learning and improvement, it does lead to uncertainties at times and the same is also true for GST. To clear this dust of confusion to some extent with respect to SMEs , IPF conducted a roundtable conference on 30th August at Delhi. The topic of the conference being - “Will GST prove to be a growth propeller or a speed breaker for manufacturers in India?”

 

The rountable consisted of IPF representative, GST expert and multiple panelists from MSME/SME sector. The list includes Sumit Banerjee - IPF representative, Chairman, ASAPP Info Global Services Pvt Ltd,  Harpreet Singh - GST expert, Partner Indirect Tax, KPMG and MSME/SME sector panelists like Surendra Kumar, Partner, PI-TECH Services, Santosh Kumar, Managing Director, Instamod Air Pipe Pvt Ltd, Gautam Ahuja, Managing Director, Dormer Tools India Pvt Ltd, Shivendra Srivastava, Director, Rigil Techno India Pvt Ltd, Sunil Khanna, Managing Director, Washmatic India Pvt Ltd, Saurav Arora, Director, Meridian Tracking Systems Pvt Ltd, Ashish Gupta, Director, Envirotech Instruments Pvt Ltd, Rajinder Raina, GM (Strategy & Business Development) Escorts Construction Equipment, Lalit Narang, Director, Coolflow Cooling Towers Pvt Ltd.

 

The conference was initiated by Sumeet Banerjee with his take on GST, followed by introduction of Harpreet Singh - GST expert

 

GST has been talked about for last ten years, so its not a subject that is new. Finally GST is here with us and we are yet to probably come on terms with it as it is a big change beyond the hullabaloo of transparency, returns, tax raids, etc. One important thing that needs to be kept in mind is that we need to learn how to adopt to GST in each manufacturing we do, to tap into this concept of GST as an opportunity for imrpoving competitiveness. The whole supply chain strategy of every company whether it is small, medium or big, has an opportunity to renew it in view of GST. Considering an example like, one of the things that will happen out of GST is that the godowns, storages and warehouses will have a negative effect. This is because 80% of the godowns in the country  were not logically derived from a need from inventory management point of view or from distance optimisation point of view, but were hired just to do the transactions. So these godowns, storages and warehouses will go empty, resulting in lower rentals in future. This is just one of the impact of GST in the short term, but in the long term GST will add atleast 1% to the GDP.

 

Harpreet Singh, the - GST expert, is a partner of indirect tax in KPMG. He has over 13 years of experience in advising clients spanning across industries in areas of sales tax, VAT, service tax and GST. Harpreet specialises in advising clients on entire gamut indirect taxes. 

 

GST from the expert's view

 

The tax computations of sectors like textile, cement, paper, FMCG, etc., always has a tax component which is not available as a setoff to them. So eventually every business in India ends up paying taxes over taxes, called as cascading of taxes. To explain in a layman's language: A trader in India, while doing his business is liable to a tax which is a tax on sale, because he is into selling of goods which is called VATs of sales tax. In order to do his trading he incurs a lot of expences towards services like land rent, insurance, calling charges, etc., on which there's a tax called service tax which is a central tax. So when a trader does a business he/she would not get a credit of the central tax against his trading tax and therefore ends up paying tax on tax. The same was applicable for the service providers too. Under GST the biggest advantage is that, whether its a trader or a service provider whatever tax you pay on your procurements, you get a complete setoff against your output taxes making it beneficial for all.

 

One of the areas of impact of GST is the rate comparison. While doing the assessment, two areas should be looked at, first is the impact of rate change and other is the aditional credits which that particular entity would get. With respect to this math, most of the sectors in the economy stands to gain than lose. Even the incremental rate change to a great extent is being setoff by the additional credits which any business would get. The other impact is the supply chain impact which is consolidation of warehouses explained above. A key area is the IT impact, as each and every unit would need to reconfigure their IT systems since without the reconfiguration of systems GST will not survive.

 

One of the provision under the GST law is that if a dealer or a manufacturer is selling goods to a customer who is also registered then the GST law mandates 100% reporting of the transaction to the GST in portal. For the first time in the country, every registered dealer, if he/she is in the B2B business, is required to report all the transactions. Thus if this dealer decides to report the entire transaction, the entire trail consisting wholesaler, distributor and retailer would automatically get caught. This is a crucial fundamental change which would lead to psychological change, as reporting of transaction would become much more convenient vis-a-vis the under reporting of the transaction.

 

Government has taken some steps  to ensure that the benefits of GST populates down to the common man. One such step is the anti-profiting body which is a mechanism to ensure that, whatever benefits the dealers are gaining needs to be passed down to the customers. So they have identified 21 sectors on which the government is keeping a close eye. These are primarily the sectors which impact the common man like textile, footware, FMCG, consumer electronics, etc.

 

GST is there in about 160 odd countries and considering factual data, the trends are as follows: 

 

1) GST implementation has always led into a chaos because the magnitude of change is such. In India the chaos is expected to be much more. 

 

2) It has always (for 148 countries out of 160) resulted into inflation and India is likely to follow the same path, so come December17 and January18 if things get a little costlier, it should not be a surprise. 

 

3) One and a half to two years down the line GST has always resulted into the growth of the economy and so India would definitely go through the same path.

 

Open house for panelists

 

The panelists were requested to discuss their queries with the expert. The conversation is provided below as cases from panelists and the respective opinion by expert. 

 

Panelist case: How exactly would a service provider gain from GST?

 

Expert opinion: Post GST, for any company that provides services, whatever expenses it incurs on purchase of goods like furniture, laptop, stationary, etc., the GST it will pay on that will be a complete setoff, against its output tax. So earlier service providers were charging cutomers 15% service tax on the invoice, without getting a setoff of that 14.5% on the purchase of the goods which they were buying. But now while billing, they will bill the customers 100(basic cost) plus18%, so what customer will see is that he/she has been charged with 18 instead of 15. Here the service provider will not tend to pass to its customer the additional tax, which was earlier a cost but now a setoff is against its output. So instead of 100 plus 18%, that 100 should go down to 94 or 93 and then an 18% should be charged. So this was something the industry would not tend to do and hence the government has a section 138 which compells you to pass on that benefit to their consumer.

 

Panelist case: Earlier there was free movement of goods irrespective of inter-state or intra-state transport and there was no paper work. But from the day of implementation of E-way bill the procedure involves producing 4 sheets of paper on every single transaction of Rs 50000 or more. This will be involved pan India and every minute tons of paper would go into printing which in not eco friendly.

 

Expert opinion: Each state has its own set of road permits or waybills, and certain state prescribe both inward and outward waybill. It was a big nuisance, lot of compliance work. Under GST the thought process is and was that instead of having different documents for different states there will be one Eway bill for the entire country. Everything was going right, the Eway rules were released. It said that the waybill would be valid for only 1 day if it travels for 100 kms on which other representations were made that trucks do not travel so fast in India. The GST council could not agree on the concensus and they delayed the implementation of Eway bill under GST. But the problem is, in this interim period till Eway bill gets implemented by the GST council, the state VAT waybill practice will be continued. Thus for the waybills old process is being carried out. The good news is that, Eway bill is on the government's agenda and hopefully it should get implemented by 1st of December. One thing for sure is that, post proper implementation of Eway bill, there would not be any requirement to carry any hardcopies of Eway bill. The government has said that, so long as the driver has the soft copy they are not insisting on a hard copy. So there would be a mandatory requirement to fill the details and the system is very simple. Whenver the goods are moving, either the consigner who is supplying the goods or the consignee or the transporter, any of 3 are given the choice to upload those required 10 details. They will have login to the government site and fill those details. A token number and a waybill will be generated with a choice to take a prinout or mail it to the transporter or give in a pendrive and the goods can be moved across the country.

 

Panelist case: For an importer, one of the problems faced is increase in working as GST is destination based causing additional work.

 

Expert opinion: Anybody who is importing and selling in the country, they are the biggest gainers, because for example consider sony, it doesnt manufacture in India. It imports from Japan and sells here. So they pay customs duty which involves BCD, CVD, SAD and then Sas. BCD was a cost which continued to be a cost under GST, SAD they were gettting a refund, the CVD component which they were paying on their goods was a cost to them because CVD is not allowed for setoff to any trader. This was in the erstwhile regime. In B2B in any ways it was passed on but in B2C, CVD was a cost and under GST it would not be a cost. So, in an import and sell model if the end customer was not registered then GST is there, for B2B it was neutral and today it will be passed on as the IGST credit.

Panelist case: Nowadays customers are even asking for CST which they were charged and want an offset for that as well.

 

Expert opinion: Negative working capital impact is there for lot of industries. For example manufacturers, if they have pan India operations, stock transfer were not liable to tax, but now stock transfers are also liable to tax, so depending upon your inventory holding and how much of stock transmit you do, again a negative impact you will have.

 

Panelist case: The precent segregation in prices of same item with different features is affecting the GST purpose.  For selling a motor, the HSN code of an electric motor is used, but selling it as a part of a dish washing machine, then the HSN code changes to dishwashing machine.  There are too many tax rates to make it a mess and to create confusion. Here somebody else is still selling it as an electric motor.

 

Expert opinion: Government would definitely look at the end use. The rate anomalies are there and there are umpteen examples of that. Some people are taking an advantage of that which is a disadvantage to others. Eventually there would be one rate for each product which is certain. Till then what can be done is, one can file an advance ruling, there are very informed people in the industry and the advanced ruling process has become very simple. The advanced ruling is a mechanism where the government can be approached for doubts. Earlier this process was very cumbersome, authorities took six months to reply, whereas now there is a law saying that, advanced ruling has to be issued within 3 months.

 

Panelist case: Instead of making things simpler the process has become more complex. Also during audits its going to be more difficult and less support from the authorities

 

Expert opinion: That is true. The initial thought process was that it should be a very simple tax, the best case scenario would have been to adopt the tax which is applicable in Australia or New Zealand. One simple tax, one flat rate whether its goods services. Its called plain vanilla GST, which is the best model and that did not happen. India is different, states do not trust the center and the center doest not trust the state. GST could have been simpler, but its toughand complicated now. But another fact is also that, comparing to excise laws, VAT laws of each states, service tax, entry tax, luxury tax, entertainment tax, etc., GST is much better. Government's moto is to follow a PPC approach, which is a tagline in their internal memo, which means paperless, presenceless and cashless approach. So basically intent is very good, it could have been simpler but one and half years down the line when all these issues get settled, actually it will be a simpler tax. Compliances will be online and considering the GST sections, its main 40 sections and their interpretations will be setlled in a year. So one and half year from now this will be a very simple tax.

 

In a Nutshell

 

The current phase is a bit tough and is a bag of mixed results because of the set of challenges. The government has intimated, that there will be issuance of 159 notifications in the coming months, out of which only 29 notifications have been issued. So the balance notification means there will be a lot of changes in the current law and all these changes would mean new interpretations, again changing the ERP system, etc. So for the next 4-5 months, it would be difficult to expect these issues and problems to reduce. Some sanity and sense should prevail post April 2018 and people as an economy should be able to derive the benefits of GST post April 2018.