India’s complex indirect tax system has affected the progression of the country’s manufacturing sector. With the MakeInIndia and DigitalIndia initiative, the country is on its way to becoming a major manufacturing hub for Asia and the world.
However, unless the Tax system is made easier to understand and comply with, the dream will not be fulfilled. Hence, here comes Goods and Services Tax (GST) that will be a positive step towards this mission and will help the manufacturing industry to stand up and recover. Here is an attempt at listing down the impact of GST in India:
- Reduction of Transportation Time and Cost
With GST onboard, multiple permits and checkpoints at state border will be removed. This will further save the logistics time and effort and ensure faster delivery of goods. Since the transportation cost will be reduced, the manufacturers would compete with each other, which will cause reduction in the prices of goods with same or better quality.
- Reduction in Raw Material and Production Cost
The objective of GST in India is to remove the cascading effect of taxes and follow a unified tax regime in India. This will affect the manufacturing sector in a way that the cost of raw material and production will be reduced. Also, the Input Tax Credit will ensure a better working capital flow for the organizations.
- Easy Credit Mechanism
Unlike the earlier taxation system, with the implementation of GST in India, cost of any services, including logistics, will be considered as a value added composition, and the manufacturer will get tax credit for the service tax paid. Now service providers can also avail the credit of VAT/ GST paid on inputs procured, and it will eventually pass on to the supply chain as cost savings.
- Setup of Larger Warehouses
With lesser location constraints, the manufacturers can club there warehouses and consolidate into one large warehouse with state-of-the art handling facilities and equipment. Simultaneously, with larger warehouses, transportation lot sizes will automatically increase, making way for more efficient bigger trucks. The savings in tax cost is clearly visible and this will ensure overall benefit to the economy and the society.
- India, a Common National Market
GST will be levied only at the time of consumption, and not production. Earlier VAT was levied at various points (from manufacturing to retail outlets). As a result, retailers had to increase the final cost of goods being sold to the end consumer.
With GST, economic distortions will be removed, leading to a common national market.