GST – A game changer for Indian economy

Pricing pattern of products or services, supply chain optimization, warehousing strategies, IT, accounting and tax compliance systems are some of the aspects that should be re-looked at so as to align with this proposed key reform. (Photo: Shutterstock)

The Rajya Sabha passed the Constitution (122nd Amendment) Bill, 2014 ('the GST Bill') on August 03, 2016 unanimously, paving way for the largest tax reform since independence.  With passage of the GST Bill in Rajya Sabha, the introduction of Goods and Service Tax (‘GST’) is only a matter of time.

While the passage of GST Bill in Rajya Sabha is indeed a welcome step, the Government has to cross few more hurdles to make GST a reality in the given time frame. The GST Bill is now required to be placed before the Lok Sabha for approval of the amendments, pursuant to which ratification of the GST Bill by more than 50% of the States would be required.  Post this, the Bill would move for Presidential assent, followed with the timely setting up of the GST Council for making recommendations on GST rates, threshold limits, administrative control and other critical matters. Thus, the Government would need to continue its momentum which has been set by it during the recent developments for GST to see the light of the day within the targeted timeline.

All said and done, the April 2017 roll-out date appears to be more realistic now.  The GST is expected to simplify taxes, reduce procedural hurdles, increase tax base, reduce tax avoidance, and bring down costs thereby benefit all the stakeholders ie Government, Businesses and the consumer.

The implementation of nation-wide GST, will have remarkable impact on every sector of the economy. The manufacturing sector, which has been hitherto plagued by a complex tax structure, should stand to benefit.  GST will subsume some of the major Central and State taxes such as excise duty, additional duties of customs, service tax, value added tax, central sales tax, entry tax, octroi and luxury tax.  Presently, these taxes in aggregate typically constitute 25% to 40% with certain categories being taxed at lower rates.  With the current deliberations around GST rate being 18% to 20%, there could be a reduction of tax incidence for several product categories.

With the introduction of GST, some of the critical sectors such as FMCG & consumer durables, Automobiles, Media & Entertainment stands to gain due to overall reduction in tax rates and seamless flow of credits. While service sectors such as Telecom, Banking and E-commerce might see marginal increase in price to end customers in the initial years of GST implementation due to increase in the tax rate but will eventually results in overall reduction in price to customers on account of tax and business efficiencies.

GST will change the entire landscape of businesses are carried out till date. Therefore, it is appropriate time for the industries to gear up and strategize the integration of GST into their operations.  In light of the Model GST laws released in June 2016 and business process reports released last year, companies should start assessing the GST impact on their business operations. Pricing pattern of products or services, supply chain optimization, warehousing strategies, IT, accounting and tax compliance systems are some of the aspects that should be re-looked at so as to align with this proposed key reform.

By  Gautam Khattar, Partner – Indirect Tax, PwC India

The thoughts and opinions shared here are of the author.