State VAT, etc. Given that Area
manufacturers will have to
supply to branches to ensure
these bottlenecks to reduce
Based Exemption have a dual
incur tax incidence on their
adequate cash flow availability
their production costs will
socio-economic benefit, it is
inputs and eventually claim
in each stock turnover period.
eventually reap greater
likely that these exemptions
refund for the same with
may get grandfathered under
the government. Currently
GST, but with a different
manufacturers get upfront
structure altogether. It
exemptions for exports. Such
is probable that these
a change in tax mechanism will
Exemptions may be continued
severely affect the working
through direct refund route
capital, as export companies
as against upfront exemption
will now have to additionally
from taxes at present.
invest about 20% of their
Given that the fate of these
working capital for tax purpose
exemptions have not been
on a roll over basis.
sealed as yet under the GST regime, the industry bodies have a great opportunity at hand to represent their industry with the Government
Increased Working Capital Requirement Due to Stock Transfer
Conclusion If the business community is bifurcated into three major buckets i.e. Manufacturers, Traders and Service Providers, the manufacturers stand to gain the highest under GST as compared to the other two. The catch is that these benefits will be available for the whole industry at large, thus the market will soon go into correction and competitors will realign their
GST may have a negative
margins and profits to this
working capital effect as stock
obvious direct savings of tax
transfer between branches will
incidence. However, the cost
now be charged at every point
savings through supply chain
of supply for which credit will
optimization, working capital
be available to the succeeding
planning and warehouse
The Model GST Law only
branch at the time of sale to
restructuring will be the niche
provides for a refund route
end consumer. Organizations
bottleneck for differentiating
of availing tax benefits for
will now have to increase their
the smarter ones among
Exports. Thus, it is likely that
working capitals in tune with
others. Companies who make
under GST regime, Export
the incremental tax rate on
an active effort to foresee
and lobby to get an exemption for the whole industry at large. No Upfront Exemptions on Exports
benefits under the GST regime by having a strategic cost advantage over their competitors. It is important that manufacturers view GST as a holistic business change and not a mere tax change. Anticipating an April 2017 GST implementation date, the industry is left with just seven months to conduct a whole set of implementation activities which involves conducting GST impact studies, IT implementation, GST transitional compliance, GST representations, etc. If international experience were to be leveraged, an average GST transition takes almost 8-9 months to complete. Thus for those who are yet to board the GST train, do so now; or expect a bumpy finish at the very end.
Indian government has now realised that for Manufacturing to reach its true potential, India will have to proportionately simplify its business procedures and promote schemes and policies towards increasing the ‘Ease of Doing Business’ in India.
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www.martupdate.com
August 2016