Business Growth: Flutter And Frenzy
The GST roll out is perhaps the best time to take a leaf out of American sociologist Everett M. Rogers’s 1962 book Diffusion of Innovations. Rogers, who was also a professor of communication studies with University of New Mexico, wrote about how an innovation is communicated and adopted by the society. His classification of innovators, early adopters, early majority, late majority, and laggards, could very well correspond India’s corporates and enterprises, who despite their varying degrees of preparedness, will be impacted by the GST regime.
Throughout the history of Indian business, the bottlenecks to growth were visible to everyone. Inefficiencies were high. Costs of transportation even higher. Many of these bottlenecks will now be history as the new goods and service tax (GST) is ushered in on 1 July. This will create not just a new tax regime, but a new, open market.
It is also a work-in-progress. The success of the GST depends on the ground work, which is being done by the government, and how its participants, the Indian corporates, entrepreneurs, and end-consumers soon adapt to the new changes and tax structures. Areas related to the GST such as exemptions, application programme interface to capture data and file returns, charges, etc., are being streamlined even now.
But that shouldn’t take away the promise of a new India — and of the sub-continent — becoming the single biggest, unified market in the world of more than 1.3 billion people.
The New Chant
GST is not only a tax reform, but a business reform. It is a mantra. If corporates implement the strategy properly, the sky is the limit. “The mantra of growth under GST is GST only, that is, G for Go beyond boundaries, S for Supply chain optimisation and T for Technology upgradation,” says Rohit Jain, Partner from Economic Laws Practice (ELP).
After the initial teething problems, and once the rails of GDP are laid, the engines of GDP growth numbers will usher in lower inflation, more savings for corporate India, better goods management and a more efficient Indian market.
Of course, global economies that implemented GST don’t have the complexities of the Indian business environment. India, with its vast local State mechanisms, may have tweaked the GST rules to suit the Indian sub-continent, but for Indian businesses, the new GST is all about growth possibilities.
“One of the major pillars of the new GST regime is the seamless availability of input tax credit,” says Archit Gupta, founder & CEO, Clear Tax. “As all indirect taxes give way to a single uniform tax, the credit availability for taxes paid on inputs will increase.”
Taxes paid on inputs such as the central state tax or the CST, octroi, etc., which could not be set off from output liability, will now be replaced with GST and credit availability will improve immensely. What does this imply? It means that corporates do not have to stock additional goods in warehouses at different places to comply with the local state laws. Corporates will now be able to centralise their distribution mechanisms and, in turn, save a bundle on logistics and transportation costs.
And perhaps the next biggest benefit is that a lot of India companies and MSME firms will get their billing systems formalised. The new system forces businesses to create a more authentic billing system against which credit can be easily availed. For banks, it will become easier to verify the bills, and provide credit against the bills. When seamless credit is available, funds are generally better utilised.
Seamless Benefits
Those who seek GST registration and are compliant could benefit from access to a larger audience. The GSTN or the GST Network — an entity established by the government to assist with the implementation of GST and with the IT infrastructure — will assign compliance ratings and those with better ratings will have a chance to work with larger businesses, and, in turn, grow their businesses.
Besides, businesses now have to comply with a single GST law, instead of having to deal with multiple laws and Acts. This will reduce the working overheads in seeking multiple clearances and approvals across various states.
According to Prashant Pillai, Head of corporate segment, South Asia with Thomson Reuters, “GST will create a unified market in India and provide a significant fillip to India’s economic growth. However, corporations will need the necessary technology infrastructure to comply with the dual GST structure, place of supply rules, multiple tax rates and potentially evolving rules,” he adds.
Corporations will also have to ensure that their supplier ecosystem is compliant to avail benefits of seamless input tax credit and prevent any potential cash flow crunch. Effective implementation of GST would, therefore, require a comprehensive and simultaneous strategy in complying with the new laws. Companies that are able to invest in streamlining their accounting and GST practices quickly will have a better handle on growth prospects.
System Reset
Tax technology will help corporations with robust processes and systems to ensure master data changes, rates and rules maintenance, accurate determination of tax, integration with various upstream and downstream systems and help manage compliance from a long term perspective. “Adoption of technology has far-reaching benefits,” says Gupta. And as businesses now have to comply with a single GST law, it will eliminate the efforts in seeking multiple clearances and approvals in ensuring compliance.
The GST regime also promises to make Indian businesses cost competitive at the global level. As costs reduce and with input credit available, the final products can become much cheaper in customers hands. Considering this, the potential growth possibility for the export sector is immense.
There is no doubt that GST will bring in massive changes for businesses small and large. For businesses and companies, GST will be a new experience. In the long run, our large consumer market and start up ecosystem will only thrive and flourish under GST.
Initially, filings on GST will be a little arduous as it is not something that companies and businesses are accustomed to. There will be a lot of queries, suggestions, and doubts in the early stages about how the system works and what will be the procedures. Unlike B2C businesses, B2B businesses must file both GSTR-1 and GSTR-2, and make sure it complies with GSTR-3 filings; this makes it a little more tedious for smaller companies. Agrees Vivek Kumar, Founder, ToneTag. “It will be cumbersome. However, as time goes by we are sure that things will fall in line,” says Kumar. “Overall, GST will only benefit the economy and will push the country towards better growth. Also, it saves us the trouble of sitting down for the big annual filing,’’ he says.
Clean Transactions
A lot of inefficiencies have been built up in the existing supply chain due to not having free flow of goods among the states and levy of additional taxes at the entry barriers. This has resulted in warehouses being set up across states and sourcing has been concentrated to local state billing. Under GST, there is an opportunity to optimise the entire supply chain.
Anjani Mandal, CEO and co-founder, Fortigo Network, is confident that businesses will maintain the chain of clean transactions. “The intent, the laws, the rules and the rates for services create the correct environment for the organising of the unorganised sector and encourage every player in the business to support the government’s intent to maintain the chain of clean business transactions.”
“Tax compliance under GST will be under the electric mode and introduction of mismatch concept in a way necessitates technological upgradation under the GST regime,” says ELP’s Jain. The organisations that are technologically upgraded and compliant will also have a higher rating and may have a better opportunity to seek business from customers.
Under the present structure of VAT and excise duty, VAT credit cannot be utilised for service tax payments and similarly service tax credit cannot be utilised for VAT payments. There is no cross availability of credit. Under the GST, credit will be available for both goods and services used as inputs and can be used to pay outgoing GST liability.
However, there are a lot of areas where clarity is needed particularly where companies transport the goods to their own branches within a state or inter-state. So, one has to pay GST even on inter-unit transfers. The official parlance says that distinct person is defined as the same legal entity having different registration in different states; so, it is considered to be a distinct entity or a distinct person.
A Little Extra...
...effort comes a long way. No doubt, most of the challenges will disappear once GST is implemented. The emergence of GST environment will create a significant opportunity for business organisations to contribute to the regularisation of the unorganised sectors, and subsequently to the growth of the overall economy.
Businesses will have to realign their models to comply with the GST laws if they have to be a part of the ecosystem and have to grow. Businesses will find it increasingly difficult to operate in isolation and operate out of the supply chain. With a little investment in technology and IT infrastructure, compliance may not be the mountain that it is made out to be.
Ultimately, the fruits of GST are there for every small and large firm to reap — and it just depends on how soon they fire up the engines and move towards the new regime.
