Manufacturing Industry is a growth driver for various developed countries, but India’s Manufacturing sector has always been a dull performer. We can justify as the complex tax structure of our country is one among the reasons for the stagnant growth of the industry. The new GST system extensively acts as a catalyst to drive growth in the manufacturing industry. GST has a great impact on the supply chain, logistics, production cost, time with the changes in the indirect tax structure. The GST model triggers a transformation from a multi-structured indirect taxation to a unified indirect taxation system. The GST system directly eradicates the empowerment of State & Central Government levying the excise duty on manufacturing plus service tax on the supply of goods. Under GST, tax paid on inputs can be set off against the tax payable on the output produced. This input credit set off is operated through the manufacturing and distribution stage of a commodity produced, from the consumption place only the tax is collected.
Removal of Area Based Incentives
GST effectively clears the area based incentive scheme which ensures the business attractiveness to other locations and widely sprawled across the country.
Reduction of Transportation time and costs
GST ensures the removal of multiple checkpoints and permits at the state border. About 60% of logistics and time is saved which guarantees more road hours and faster delivery. This makes the manufacture more competitive and effectively reduces the goods price at a better quality.
Impact on Production Cost
GST totally removes the cascading effect of taxation. This ultimately reduces production cost and raw material cost. And the Easier Tax credit system helps in better accounting and cash flow situation for the organizations.
Increased compliance requirement
Besides adding profits to the business GST increases the compliance necessities.
The new GST system makes the producer of the product pay the GST on the transaction value and it is creditable for all the resellers until the product reaches the end customer. Hence, the tax burden on MRP is very much reduced from the customer’s end.
Increased Working Capital
Now, after the GST implementation, the stock transfers are considered as supplies and they have an applied GST which results in cash flow hindrances. So, the manufacturing companies shall strategize their strategies in supply management to minimize the cash flow impact.
Importance of Goods & Service Tax(GST) in the Service Sector:
After a long wait of 10 years, GST is now a reality. Most of the Government revenue comes from indirect taxes. The service sector, as a standalone, contributes a huge part of the whole Gross Domestic Product (GDP), it shows the large contribution of services in taxes consequently. Service sector not only rules on GDP, but also attract the foreign investment. It predominantly provides a large scale of employment. This covers various activities such as Financing, Real Estate, Social and personal services, Transport, Restaurants and Hotels, Trade etc.
Registering a Business place:
GST registration rules are simple to the service providers who do their operation in one state. They are eligible to get more Input Tax Credits with less GST compliance. However, the service providers who do operations in more than one state have to abide by some major GST rules. Multiple state operation service providers have to get registered in each state. So, certain rules and conditions have to be fulfilled by the service providers to register across the multiple states.
Revenue of the Government:
Service Tax is applied to all over the India except Jammu & Kashmir because the Central Government does not have the right to collect the service tax on the services rendered as per the Model Goods & Services Tax law. But, now GST extends to all over the country, including Jammu & Kashmir and makes the Central Government collect the service tax on the rendered services to the state which will obviously increase the Government revenue.
Business Process Change
Under the destination based tax, GST, a state collects the tax where the goods or services are consumed. In our country, most of the IT companies registered themselves only with the Central Service Tax and the accounting & billing tasks are carried from a Central location. Under the GST system, service providers have to do registration for all the states where they have their customers. By doing this, SGST (State Goods and Service Tax), IGST (Integrated Goods and Services Tax) is rendered for the respective states. Therefore, IT service providers should bifurcate their services, bill their customers on the basis of consumption of location.