‘The Model Goods and Service Tax Law’ is in now probably in the last stages of its implementation. This bill has been in the process of getting cleared up from various levels of the legislature for quite some time, and the dust seems to have settled on it now.
The implementation of the Model GST Law is aimed at curbing multiple taxations of the same products at varied levels and attaining a certain degree of transparency and friendliness for the buyers as well as the manufacturers.
Let us try to look at both the beneficial and the problematic issues that might come up with the implementation of GST.
Benefits of GST for the Indian manufacturing sector:
- Decreased taxes: This is the most obvious and appealing aspect of the bill for the manufacturers. GST will subsume several indirect taxes and thus make the process of manufacturing as well as sales more profitable for the entrepreneurs.
- Freedom from cascading taxation: As the GST model aims at creating a single tax at the centralized level as a replacement for the various taxes previously applied at central and state levels, the post-manufacturing issues due to cascading taxes would reduce. This means that the dealers or the distributors will not have to pay state taxes instead of the product, which would translate into improved profit margins.
- Supply chain restructuring: The transportation of the items is largely delayed because of the queuing for taxation at the state boundaries. A centralized taxation would mean that the supply chain would be working in a smoother pattern. This would be particularly beneficial for the items that need to be consumed in a defined period like food items.
- Improvement in MRP valuation: Due to the multiple taxes at different levels, the final retail price is generally greater than the ex-factory cost by multifold. Now when the taxation value would be reduced than the manufacturers would price their goods more competitively. This would be definitely helpful for them to capture a larger customer base.
Issues with GST:
- Cash flow blockage: GST deems stock transaction as taxable. While this tax is available further as credit but this credit is usable only after the conclusive supply of the product. Thus the amount which has been paid at the GST level is blocked till the time of final sales. This could be really troublesome for new and smaller manufacturers with limited working capital.
- Uncertainty about discounting: While the discounts and incentives are not taxable in the current system, there hasn’t been any clarity about their status in the Model GST Law regarding this aspect. This disparity could be really problematic for the manufacturers who have to manage an extensive network of dealers.
GST is a new bird in the air; therefore it is quite difficult to predict the nature and the height of its flight. But one thing is sure that if implemented properly and along with the improvisations that are required to make it more transparent and devoid of burly disparities, this law would change the face of the Indian market.
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