GST: A Tax Reform Or A Business Reform

The transition to new GST regime requires judicious planning. Business entities need to take many measures as part of their preparation for implementation of GST, the first and foremost being to understand the key areas of impact to their businesses. The impact would be on revenue, costing, procurement, business compliances etc. Once these key areas are identified it would be easier to define the essential transformation processes which will have to be dealt with.

If one has to look at the impact of GST from a macro perspective, the following are the three things that would be the most important:

1. Business Objectives – Product pricing, Restructuring of transactions and contracts, decisions on consolidation of plants, warehouses, working capital management

2. Supply Chain - Historically, tax structures have been a major determinant for designing of Supply Chains in

a. Procurement: Influenced by import duties, availability of input tax credits

b. Manufacturing: Influenced by fiscal exemptions/deferrals

c. Distribution: Multi-tiered, influenced by State boundaries due to CST Implications

Supply Chain designed purely on business parameters will unlock considerable values

3. Information Technology –

a. Transition of IT Systems to the new tax framework

b. Greater focus on flow of electronic information under GST.

c. Robust IT Systems a pre-requisite

The Challenges:
The first and foremost for any business to understand is how GST would change the world upside down. For this one needs to look at the current tax structure and the anomalies thereunder.

· Cascading Impact – Burden of tax on tax

· Non - availability of VAT Credit against CENVAT liability and vice-versa

· Non - availability of CST Credit against VAT liability

· Multiplicity of taxes at the Centre and State levels

· Multiplicity of Tax Rates

The challenges are more to understand and if one may say “unearth” would not be an understatement. Every sector, rather every company would have its own set of challenges. If one doesn’t start thinking about what is going to happen to his business under GST at the earliest, it would rather make that business extinct.

One needs to understand that preparing for GST is not just about looking at a new tax but rather understanding the total impact on every dimension of its business.