Change over to GST

Stakes are high and reasonably so! It seems and is hoped that once the GST gets implemented in its entirety, the way India does business will change forever. We will be at par with the other 160 countries that have implemented GST. Here’s the reality check on the industry’s perception and preparedness on the most impactful taxation regime to be implemented soon…

How revolutionary is the GST implementation going to be for your business?

Harkirat Singh, MD, Woodland: Retail sector will get an advantage with the advent of GST. The implementation will lead to seamless integration of goods & service transaction across the states. Simplified taxes will help to achieve better margins. Attaining raw materials and movement of goods would become easier, which will open gates for more suppliers/vendors to merge. A wider base of distributors would be available as paperwork will not be a problem, which will further lead to better access and low transportation costs. An encouraging environment for supply chain will also reduce the working capital requirement. Overall, it will be beneficial for the consumer as well as the manufacturer.

D. Mohan, Joint Manager Director, CavinKare Pvt. Ltd.: We look at GST as a game changer, which will help the business to revisit its supply chain and other business processes. GST is not only a tax reform, but also a business transformation. In terms of GST implementation in CavinKare, we have thought through a structured program for the timely implementation with the help of our in-house team working along with leading consulting firms.

SA Mohan, CEO, Maini Materials Movement: Maini Material Movement has all its production facilities in Bengaluru from where the products are supplied to pan India locations. Implementation of a unified tax system will help us save taxes as well as will make the supply chain simpler, resulting in hassle free transactions. These benefits will be transferred to our customers as well. Under various tax grades of GST, material handling equipment will most probably fall into the second last slab, which will help us witness savings of around 9% in the total taxes because of simplification of taxation policies. The reduction in prices due to lesser taxes will definitely interest the customer as well as boost the demand of the product. Being a material handling & storage solutions provider, warehouses are one of the major customers for us. Currently the warehouses of a single company are spread in almost all states for ease of supply through the complex tax structure. After GST implementation, these companies will look forward to combine these numerous small warehouses into a few large establishments. New generation MHE and storage systems will help them to increase efficiency of these smart warehouses bringing them cost reduction.

Yaduvendra Singh, Global Head & Vice President, GreyOrange: Currently, businesses design their supply chains to save taxation. For example, an e-commerce company would like to have its warehouse in each of the states where it sells its products so that there are no inter-state transportation taxes. However, operating many small warehouses means that the small. This means that there is not much scope to take advantage of automation. Once GST is implemented, there is no tax loss even if the goods move across several states before reaching to the end consumer. There is a single tax levied basis ‘place of sale’. We will witness massive consolidation by companies making way for large, state-of-the-art, automated warehouses. This is where GreyOrange products play an important role- to automate the warehouses to make these more efficient and accurate.

Vineet Baid, CEO, Falcon Autotech Pvt. Ltd.: With GST, restructuring of supply chains is expected. Number of warehouses, location of those warehouses and inventory would be driven more by operational optimization rather than tax optimization. With this, we anticipate consolidation of the warehouses, resulting in bigger warehouses. Such warehouses / distribution centres / fulfilment centres typically require warehouse automation products and services which are offered by Falcon. Falcon also offers an integrated Warehouse Management System to manage the restructured supply chain.

Asim Behera, COO, Daifuku India: We automate material handling. The volume of goods in/out per location will increase significantly due to consolidation post-GST; this is where we come in. Once the throughput of goods being handled at the factories, warehouses or DC (Distribution Centers) increases, humans can’t keep up or it’s not safe; then our solutions and robots come into play. They become the workhorse and enable factories and warehouses to increase their efficiency, utilization whilst reducing dependency on manpower.

Anjani Mandal, CEO, 4TiGO - The Truck Network: GST, as per the original concept and design, promises to be a gamechanger for the logistics industry as a whole and our business in specific. We stand for and support clean business transactions with cashless payments and high compliance to the regulatory authorities. We expect that after complete implementation  of GST, users of the 4TiGO platform will be able to (a) reduce their transportation time by 20-25% and costs by 15-20%, and (b) improve their utilization level by 20-35%.

Ameen Khwaja, Founder & CEO, LatestOne.com: The uniform pan-India tax regime is anticipated to reduce the cascading effect of taxes on the costs of goods significantly, which would reduce the cost of goods that can in turn be passed on to customers. Single tax system is expected to give benefits of seamless supply chain and logistics network that helps in meeting customer orders in different parts of the country. Credit of input tax over output tax on supplies will reduce the tax burden, further adding to reduction in prices of goods. Most of the retailers in our sector (Mobile Accessories) are not under tax purview, we hope GST to bring them under tax purview, thus we can compete better with them on the prices.

Sumit Khandelwal, Co-founder, Giftxoxo & Frogo: Currently, there are no clear-cut guidelines for GST for e-commerce and online prepaid instruments. There will be special provisions for e-commerce in the new regime, which were not addressed earlier, which will remove a lot of ambiguity in the way e-commerce companies function. We believe that GST will definitely simplify the overall taxation and compliances mechanism for our industry. GST will bring in a wide set of suppliers, services, and goods under its preview, which will be beneficial for the end consumer and the overall economy.

What can be the probable challenges in implementing GST at corporate level?

Harkirat Singh: It would be a great challenge for corporates to be GST-ready. Sustaining the uniformity of taxation will be a big challenge especially at local level. GST is an opportunity of migrating to a world class indirect tax compliance system, one that is fully computerized. Industries would need to anticipate and develop alternate scenarios for the GST design and assess its effect on their accounting and compliance frameworks, cash flow and organizational structure. The other major challenge will be to roll out the required IT platform for implementing GST.

D. Mohan: GST requires lot of preparations from systems and processes perspective as the reforms impact all aspects of business. Eventually all of these have to be dovetailed into the various processes and IT systems before we go live. The GST implementation in any business is dependent on two factors, namely a) the availability of draft law and procedures in detail; b) the preparedness of ERP vendors to provide necessary GST patch / upgrades. So, as preparedness of GST is dependent on the above two factors, sufficient time should be made available post availability of detailed law and the ERP patch. As of now, we have a basic model law on the basis of which no system redesign can be undertaken. Similarly, as the ERP vendors are yet to come out with their GST versions, the challenge is going to prepare businesses for GST implementation from 1st April, 2017. We believe it is a challenge that can be managed. We understand that in other countries, sufficient time was available to facilitate such implementations (most recent ones in Malaysia, that took > 1 year). Indian GST being much more complex, it would be prudent and meaningful to give sufficient time for preparations.

SA Mohan: The country has been waiting for enactment of GST since the time it has been announced. Though GST is sure to bring reforms in the tax structure for good, still it will be a challenge to come out of age old system and adapt to this change. GST aims to bring a centralized tax structure in India. Presently different states have different taxation systems and policies. With the introduction of GST, the regulatory establishment of these policies will be a challenge. The taxes will be levied by a single central body or by different state bodies is still an unanswered question. The current taxation system is very different from what it will be after GST comes into force. All companies need be made aware of the new return filing structure. It will take some time for the people to completely understand and implement the new rules. All companies are using ERP to manage their functions. The current ERPs are designed and programmed as per the existing tax system. When everyone will move to this centralized taxation structure, all companies have to upgrade their ERPs in order to cope up with the tax reforms which GST will bring up. Implementation of GST will simplify the tax system but since it will be a new introduction, employees will need some time to understand and use it. The companies will have to organize training conducted by experts in order to train the employees on use of the new parameters for tax calculation.

Yaduvendra Singh: The objective of Goods and Services Tax (GST) is to simplify the mammoth Indian indirect tax structure. When in force, GST will replace a host of indirect taxes by a single, unified tax. However, all the states need to pass the GST bill in their respective assemblies before it is implemented. Moreover, there needs to be consensus about revenue sharing between the Central Government and all the states. This may take a long time. Specific to the manufacturing sector, currently taxes are levied basis triggers such as: ‘manufacture under central excise’, ‘sale under VAT’ and ‘provision of service under service tax’. Post GST implementation, these three triggers will converge into one, i.e., ‘supply’ under GST. This means that tax will be levied if a product has been supplied or a service has been sold (single trigger), instead of multiple triggers. It is a welcome move for the manufacturing sector. The only challenge is that the industry will take some time to get used to the new structure. We may see new business models emerging in the industry to leverage the new tax structure.

Asim Behera: The biggest initial challenge or the work opportunity would be to re-look at their network planning. Most of the Manufacturing & FMCG companies have set up factories and the warehouses basis where they get the best tax break rather than which makes the most sense from a purely supply chain/distribution model. This in itself is a mammoth task as whatever network planning they have done till now will go for a toss. Currently many have distributed factories and an equal multiple of warehouses/depots to serve the end customer; this will change to consolidated factories with bigger Finished Goods (FG) warehouses at the factory itself and these then supplying to RDC (Regional Distribution Centers) who then supply to the end customer. As a result, automatically the truck sizes being used at the factory for FG shipping will increase. So, one will need to re-look if the current factory layout will be able to accommodate bigger trucks, higher volumes, etc.

Vineet Baid: One of the key challenges would be restructuring of supply chains. Compliance requirements would increase. Upgradation of systems, stabilization of upgraded systems will be tedious and data correction exercises can be expected.

Anjani Mandal: The challenges for customers would entirely be based on how much they under-estimate the impact of GST. Post-GST, cash-based business transactions and undeclared income will shrink in size, creating a large opportunity for corporates to cater to a significantly higher market size. Two sets of challenges will be present while corporates cope with this change: Firstly, their ability to change their accounting, billing, payment and dispatch systems and secondly, their ability to harness opportunities of a sudden market expansion.

Sumit Khandelwal: Implementation of GST will bring in couple challenges for us such as change in infrastructure (Accounting system, ERP, books of accounts etc.), the new set of documentation and registrations, education of our suppliers, which are mostly unorganized in our industry and identification of supply vs turnover. The major challenge will be to avail input credit from the large base of unorganized suppliers and passing the benefit to the end consumer.

How prepared are you to harness post-GST opportunities?

Harkirat Singh: We are poised to grow and increase our production line. The abatement rate will increase the production because the tax burden would have been reduced under GST. Besides this, the reduction in excise will improve the quality of the product. We are fully prepared to provide more varieties, innovative designs and matchless quality to our consumer.

D. Mohan: We understand that the new GST revised model law expects businesses to pass on the benefits to the customers through its anti-profiteering clause. Irrespective of the legal requirements, we are looking at GST to help, identify value so that we can effectively manufacture products and sell at very competitive prices.