GST and Impact on Business

GST, a biggest reform in India’s indirect tax structure. The host of indirect taxes currently levied either by Central or State government will be subsumed in GST and it will be a single unified and comprehensive Tax to be levied on supply of goods and services. It is estimated to boost GDP by 1.5 to 2%. ‘One India, One Tax, One Market’ will be the new reality with GST removing the State barriers and unified tax rate across the nation.

For businesses, it is imperative to understand the new tax law, its impact and implications for their respective business. A complete understanding of the proposed GST tax structure will facilitate a smooth and seamless transition.

Impact of Input Tax Credit

Under GST, input tax credit will be available to you post matching of invoices of suppliers outward supplies. And your supplier should file the return along with the tax payment. If your supplier does not comply, it will cause a major dent to your cash outflow.

For some reason, if your supplier fails to furnish the valid return, the input tax credit claimed by you will be reversed and you will be asked discharge it along with interest. There will be a twin blow to your cash outflow:

You have already paid your supplier.

Since ITC claim is reversed, you have to pay the tax along with interest.

What does all this mean? If you are not disciplined about being compliant, you might lose your customers. Similarly, if your supplier is not compliant, he might lose you.

Taxability of Stock Transfer

Under GST, tax paid on stock transfer will be fully available as input tax credit. Thus, it eliminates the cascading effect and as a result, the product will be cost effective. This will have impact on working capital, since tax is paid on the date of stock transfer, and ITC is effectively used when stock is liquidated by the receiving branch.

Today, in order to leverage tax benefits, many businesses have established branches purely out of statutory needs. Now, they may have to re-look the branches only from the perspective of business operations.It is imperative now an effective planning of branches and leveraging of cross branch transfers can reduce the impact on working capital.

Enhanced Input Tax credit

In GST, the concept of input tax credit is broadened to include any input or services “used or intended to be used in the course of or for furtherance of business. Therefore, businesses will be allowed to claim input tax credit on all such inputs and input services. This will reduce your cost of operation, and directly increase the net margins of your business, thereby, strengthening your working capital.

Technology Adoption

GST will ride on the strength of technology with seamless interface with the GSTN server. Businesses must automate their manual systems, and install software that is robust enough to interact with the GSTN system, and assist in immediate, accurate, and reliable compliance.

Invoice matching is a very critical requirement of GST. Because of the clear timelines dictated by GST, compliance will no longer be a month-end or quarter-end activity. Therefore, invoice matching and other compliance related activities cannot be achieved using a manual or a low-tech system. Speed and accuracy are both critical. This will require a GSTN-enabled business application or accounting software so that the task ahead become seamless and efficient

Conclusion

What next for all of us? With 1st of July 2017 being the likely date for launch of GST, the business needs to understand the impact of GST on their business process like procurement, Pricing strategy, Vendor management, logistics, fitment of right technology etc. and re-structuring accordingly will be the key for your preparedness and seamless transition to GST.