Benefits of GST to the Indian Economy

Removal of bundled indirect taxes such as VAT, CST, Service tax, CAD, SAD, and Excise.
Less tax compliance and a simplified tax policy compared to current tax structure.
Removal of cascading effect of taxes i.e. removes tax on tax.
Reduction of manufacturing costs due to lower burden of taxes on the manufacturing sector. Hence prices of
consumer goods will be likely to come down.
Lower the burden on the common man i.e. public will have to shed less money to buy the same products that were
costly earlier.
Increased demand and consumption of goods.
Increased demand will lead to increase supply. Hence, this will ultimately lead to rise in the production of goods.
Control of black money circulation as the system normally followed by traders and shopkeepers will be put to a
mandatory check.
Boost to the Indian economy in the long run.

Impact of GST on Manufacturing

GST is one of the key policy changes that will have a direct impact on manufacturing establishments. So far, the
existing complex tax structure has been a dampener, resulting in the slow growth of the sector. GST is expected
to liberate the sector by unifying tax regimes across states.

Overall, GST is expected to have a positive impact and boost manufacturing. Here is why:

Removal of multiple valuations will create simplification: The old tax regime subjects manufactured
goods to excise duty, which is calculated differently in different states. While some states calculate excise
duty based on transaction value, others calculate it based on quantity. Most manufactured goods excise
duty is currently considered on MRP valuation. This creates great confusion in valuation methods. GST
will usher in an era of transaction-based valuation, making calculation of tax much simpler for the
manufacturer.
Entry tax subsummation will reduce cost of production: The subsuming of the entry tax for inter-state
transfers is a key reason for reducing cost of goods and services. For example, a supplier of cement from
Maharashtra to Karnataka was earlier required to pay entry tax when the supply crossed the interstate
border. For Karnataka, the entry tax rate was 5% of the value of the goods. The supplier would pass on
this additional cost to the customer, resulting in increase in selling price. With entry tax being subsumed,
the supplier need not pay the entry tax rate amount and consequently, not charge the customer this
amount either.
Improved cash flows: Under the new tax laws, manufacturers can claim input tax credit on input goods,
which seems to be a positive sign for cash flow. SMEs are keenly observing the time difference between
input tax credit and the credit being available.
Single registration process will provide ease of registration: The old regime required manufacturers to
register each manufacturing facility separately, even those in the same state. GST will simplify the plant
 registration process by allowing single registration for all manufacturing entities within the same state.
Previously, if a brick manufacturer had factories in Bangalore, Hubli and Dharwad, each unit had to be
registered separately. Under GST, all of these factories would be jointly registered under the state of
Karnataka. Of course, different state-entities will require separate registrations under GST too.
Removal of cascading will lead to lower cost-to-consumer: The old tax regime does not allow
manufacturers to claim tax credit on inter-state transaction taxes such as octroi, central sales tax, entry tax
etc. This results in cascading of taxesan extra cost to the manufacturing company. Manufacturers end
up passing on these extra costs to the consumer. The unified GST regime will eliminate multiple taxes
and thus lower cost of production; this, in turn, will mean lower pricing for the consumer. For example,
prior to 1 July 2017, SMEs in manufacturing used to pay Excise Duty, Central State Tax and sometimes
VAT too at 12.5%, 2% and 5.5% respectively. With GST in effect, they are required to pay 18% in taxes.
Restructuring of supply chain: To align with the GST law, businesses will be required to realign their
supply chains. However, this is a blessing in disguise. Till date, most supply chain structuring has been
designed around how to manage tax regimes. With a single tax regime, this will change, and supply chain
structures will focus on driving business efficiencies. An example is that of warehousing. The old regime
demands that warehouse management be based on arbitrage between varying VAT rates across states.
This is expected to change to bring in economic efficiencies and more customer-centricity going ahead.

Impact of GST on consumers

1. Reduction in price of goods and services, how?

The present scheme of indirect tax results in cascading effect of taxes, and thus in certain scenarios the taxes paid on
procurements are not available for setting off the output tax liability. This leads to formation of a tax cost and rise in
price of the commodities. The GST implementation is expected to curb this cascading effect, and provide a seamless
credit to the supplier of goods and or services. In turn, there will only be a tax on value addition and no business costs
in terms of taxes paid on procurement of inputs, input services, or raw material.

2. Uniform prices throughout the country

Today, we have Value Added Tax (VAT), which is levied on sale of goods and administered at state level. Under the
VAT laws, there are Schedules which outlines the tax rate on commodities with their brief description. This
description and fitment may vary from state to state which leads to price variation. Besides this, there are certain local
taxes and duties (such as entry tax) which are levied only in identified states. With GST coming in, all these
complexities will be ironed out, and there will be uniform prices across nation. Implementation of GST is most
commonly echoed as one nation, one tax, one market.

3. Transparency in tax structure

As a matter of consumer right, he is entitled to be of information including taxes and duties relating to products and
services that he consumes. The kind of efforts that government is taking to educate the masses, it will create awareness
amongst the consumer regarding the proposed GST structure and its transparency measures. A major change would be
elimination of MRP-based taxation, where consumer was never aware of taxes inbuilt in the price of commodities.
Also there will be an end to dual taxation (levy of service tax and VAT at the same time), which is prevailing today in
software and restaurant sector.

4. Certain goods to be costlier in the name of cess, and service will be taxed at a higher rate

GST will have minimum exemptions. The existing benefits will be grandfathered under GST only where necessary
and it is expected that few of the exemptions and tax holidays will be put in their sunset mode. Removal of such
benefits, may burn a hole in the pocket of consumers as they have to bear an economic burden of tax cost (GST),
which businesses will pass through to them. Further, the government has introduced a levy of cess on certain goods
(tobacco products, coal, aerated water, motor cars), to be commonly be known as compensation cess. This charge of
additional cess will make these goods costlier than the existing prices. Also the services are expected to be costlier
by three percent, and the rate under GST may increase to 18 percent.

5. Better accessibility of goods and services

The implementation of GST will provide numerous business opportunities to decide on warehousing and logistics. It is
expected that there will be a better accessibility of goods and services under GST, as the consumer need not travel
across states for making a purchase to save tax. Further, the online shopping companies will plan their operations to
reduce the lead time, while managing the warehousing facilities, which today are contingent on filling complexities of
present tax structure.

Conclusion

As a consumer, one is eagerly waiting for announcement of tax rates and proposed list of exemptions. Using which, he
will apply a gross mathematics and decide on his major purchases during this transition period. Say, motor cars are
expected to be expensive in GST, a consumer will look forward to buying the same before GST kicks in. Indirect
taxes will follow the consumer, no matter in what name and shape, and he (consumer) will have an inevitable
encounter with them as an essential element in price of goods and services. What an informed consumer can do is be
aware of applicable taxes on his purchase.

Challenges of GST in India

GST, the greatest tax reform since Independence is here. As are the challenges for businesses across the country. Like
everything else, all is not smooth sailing for GST and there are some obvious challenges for businesses and end
consumers which we will discuss in detail here.

Change in Business Software

Most businesses use accounting software or ERPs for filing tax returns which have excise, VAT, and service tax
already incorporated in them. The transition to GST will require businesses to change their ERPs, too; either by
upgrading the software or by purchasing new GST-compliant software. This will lead to increased costs of buying
new software and training employees on how to use it.

GST Compliance

SMEs are still not completely aware of the nuances of the new tax regime. Changing over to a completely new system
of taxation requires understanding of the minutiae, which businesses lack right now. Most of them are worried about
filing timely returns, but it is important to note that even before businesses can reach the filing stage they have to issue
GST-compliant invoices. For a traditionally pen-and-paper economy like India, this change to digital record-keeping
is going to be massive. Invoices after 1st July will need to be GST-compliant with all details such as GSTIN, place of
supply, HSN code etc. as mandated by the law.

Increase in Operating Costs

Most small businesses in India do not employ tax professionals, and have traditionally preferred to pay taxes and file
returns on their own to save costs. However, they will require professional assistance to become GST compliant as it
is a completely new system. While this will benefit the professionals, the small businesses will have to bear the
additional cost of hiring experts.

Also, businesses will need to train their employees in GST compliance, further increasing their overhead expenses.

Policy Change During the Middle of the Year

GST will go live three months into the financial year 2017-18. So, for FY 2017-18, business will follow the old tax
structure for the first 3 months, and GST for the rest of the time. It is impossible to cross over from one tax structure to
the other in just a day, and hence businesses will end up running both tax systems in parallel, which might result in
confusion and compliance issues.

Online Procedure

GST compliance, return filing and payments all have to be done online. Many small businesses are not tech-savvy and
do not have the resources for fully computerized compliance. Even as the rest of the nation gets ready to go digital,
businesses in small cities across India face a huge technology problem in the days ahead.

Higher Tax Burden for Manufacturing SMEs

Small businesses in the manufacturing sector will not have it easy in the GST regime. Under the excise laws, only
manufacturing business with a turnover exceeding Rs. 1.50 crores had to pay excise duty. Whereas, under GST the
turnover limit has been reduced to Rs. 20 lakh, thus increasing the tax burden for many manufacturing SMEs.
However, SMEs with a turnover of upto 75 lakhs can opt for the composition scheme and pay only 1% tax on turnover
in lieu of GST and enjoy lesser compliances. The catch though is these businesses will then not be able to claim any
input tax credit. The decision to choose between higher taxes or the composition scheme (and thereby no ITC) will be
a tough one for many SMEs.

No Clarity on Tax Holidays

Many manufacturers (textile, pharmaceutical, FMCG industries) enjoy tax holidays and state benefit schemes. There is
still no notification regarding these benefits. This will mean increased costs for these industries, which will probably
be passed on to the end consumers.

Disruption to Business

Cloth merchants (unorganized) are going on strike to protest against GST. Eateries and drug shops in Chennai are also
threatening to protest the regime change and this is only the tip of the iceberg. In the coming days, we can expect to
see more of these protests happening across the country and these will undoubtedly disrupt business. If theres any
solace, its in knowing that other countries who implemented GST never had it easy either. Malaysia recently
introduced GST in 2014 and faced nationwide strikes and protests. How the Indian government will handle these
events is left to be seen.

Conclusion

The government is trying to reduce the burden of compliance for businesses by relaxing the return filing requirements
for the first two months post implementation. Also, the provisions of TCS on e-commerce and registration for online
sellers have also been relaxed for the time being.

Change is definitely never easy. The government is trying to smoothen the road to GST. It is important to take a leaf
from global economies that have implemented GST before us, and who overcame the teething troubles to experience
the advantages of having a unified tax system and easy input credits.

Once GST is implemented, most of the current challenges of this move will be a story of the past. India will become a
single market where goods can move freely and there will lesser compliances to deal with for businesses. The benefits
of GST will definitely outweigh the disadvantages of GST.
 GST and E-Commerce

GST-induced taxation changes for e-commerce sellers

Presently, GST appears to be an assortment of compliance guidelines. The enhanced regulatory requirements
might take a sellers focus away from operations for some time. However, GST as a single tax for products
across India will be beneficial for all e-commerce sellers in the long run because of the aspect of transparency in
trade brought forth by this new indirect tax reform. Lets discuss the impact of GST on an online sellers
operations:

1. Increased reach of e-commerce sellers: GST has opened avenues for small and medium sized e-commerce
sellers to compete with larger enterprises at a national level. Previously, these sellers were limited to operating
within the confines of one state due to the looming tax rates of trading across multiple states. By unifying the
taxation, e-sellers need not be burdened by multiple taxes while selling to consumers across various states.

2. Compulsory registration required: The government has specified a turnover threshold of Rs 20 lakh for
registration under GST. This has been relaxed to Rs 10 lakh for north-eastern states. However, for e-commerce
sellers, registration is mandatory, irrespective of whether they fall below the turnover slab of Rs 20 lakh or not.
Removal of the threshold for registration will help bring more online businesses into the sphere of taxation.

3. Ineligible for Composition Scheme: E-commerce sellers are not eligible for the Composition Scheme either.
The Composition Scheme permits businesses with a turnover of under Rs 75 lakh to file quarterly returns instead
of monthly and pay tax at a low rate of 2%. Although this might seem to be a disadvantage for e-commerce
sellers, the number of documents required to file for the Composition Scheme is relatively higher, reducing the
burden of document collation on the seller.

4. Tax collected at source (TCS): E-commerce marketplaces are required to deduct 2% TCS on the net value of
sales as the GST liability of the seller and deposit it with the government. Further, the sales reported by both the
e-commerce marketplace as well as the seller need to tally at the end of each month. Discrepancies, if any, will
be added to the turnover of the seller and they will be liable to pay GST on the additional amount. This measure
will weed out fraudulent sellers and shall subsequently build trust between marketplaces and sellers.

5. Filing of tax returns: The e-commerce sellers need to follow the same process that is followed by brick-and-
mortar retailers. Form GSTR-1, containing details of outward supplies, needs to be submitted by the 10th of
every month. The seller will receive Form GSTR-2A by the 11th of the same month, which contains details of
the tax collected by the e-commerce marketplace. They then need to review and submit Form GSTR-2 by the
15th of the month. Discrepancies in supplies are to be submitted through Form GST ITC-1 by the 21st of the
same month. This would require businesses to be particular about tallying data coming from different sources
before filing returns. Taking the help of a professional GST services provider in meeting compliance has become
a requisite in light of these regulations.

6. Increase in Credit: The GST law has established input tax credit to cover goods or services used by a
company in the course of business. E-commerce sellers need to establish a direct relationship between the input
material and the final product/service is eliminated. Much like other registered entities under GST, e-commerce
sellers too can now avail input credit.

7. Refunds under cash on delivery: Consumers extensively opt for cash on delivery in India and such sales
witness return of orders to the tune of 18%. The reconciliation process for refunds takes around 7-10 days.
Initially, there might be confusion around generating refunds for cancelled orders where taxes have already been
filed.
 GST on Exports

GST on Exports: How Will It Be Levied?

The export of goods or services is considered as a zero-rated supply. GST will not be levied on export of any
kind of goods or services.

A duty drawback was provided under the previous laws for the tax paid on inputs for the export of exempted
goods. Claiming the duty drawback was a cumbersome process. Under GST, the duty drawback would only
be available for the customs duty paid on imported inputs or central excise paid on certain petroleum or
tobacco products used as inputs or fuel for captive power generation. There was some confusion surrounding
the refund of the tax paid by exporters on the inputs.

A guidance note relating to the above issue was released by the Indian government which has helped in
clearing doubts regarding the claim of input tax credit on zero-rated exports. An exporter dealing in zero-
rated goods under GST can claim a refund for zero-rated supplies as per the following options:

Supply goods or services, or both, under bond or Letter of Undertaking, subject to such conditions,
safeguards and procedure as may be prescribed, without payment of integrated tax, and then claim a refund
of unutilised input tax credit.

The exporter needs to file an application for refund on the common portal either directly or through the
facilitation center notified by the GST commissioner. An export manifest or report has to be filed under the
Customs Act prior to filing an application for refund.

Deemed Exports

The supply of goods or services to the following would be treated as exports under GST

1. Supply made to a SEZ unit/ SEZ developer

2. Supply made to an Export oriented undertaking (EOU)

Filing of returns under GST for the deemed export is to be done as per the general procedures provided for
export under GST.

Documents Required for Claiming Refund on Exports

1. Copy of return evidencing payment of duty

2. Copy of invoice
3. Document proving that the burden of paying tax has not been passed on (CA certification or self-
certification).
4. Any other document required by the government.
Conclusion

With GST in place, the export industry in India would be able to have internationally competitive prices due
to the smooth process of claiming input tax credit and the availability of input tax credit on services.