GST Impact in India

Hello Followers,

Many of the followers have been asking me regarding the impact, GST is gonna bring in Indian Economy.

So thought of putting my views over the blog so that everyone can get a little idea of how GST will impact companies and consumers. Well, if you have heard till now, most of top analysts have said that GST will be a great boost to economy. Over a long term, Yes, it will drive our Indian economy in Top Gear but there will be a little negative impact in near term. Why is it so?

Just to give an overview, GST as most of all know, is a transparent tax and it also gonna reduce number of indirect taxes that were levied. With GST implemented, a business premises can show the tax applied in the sales invoice. 

I had been working as a Microsoft Consultant and I have worked on projects of companies of different industries. There will be different impacts on different industries. So, I will talk about one industry and try to share the impact of GST in that particular industry. It is relevant to most of all the industries. Lets take a sector of Tiles and Plywood. 

Well, not every company can afford to have plants each and every state, its almost impossible to do so. So, what companies do is they strategically have plants in different areas/regions and they try to open plant where Tax is minimum and from where they can supply atleast 4-5 states which are nearby depending on the size of the company. 

So to get tax benefits, what they to do is, they take a godown on rent and then supply the materials from that particular godown to the respective state. 

To make it more clear, I will give an example. Say a company named ABC Tiles have a manufacturing plant in a state where the tax is minimum, consider a Union Territory. But then the business over there is quite limited. They have most of their business coming from nearby states, say Gujarat or Maharashtra.

When ABC Tiles sell its item to a state of Maharashtra or Gujarat, they will be implied the taxes, CST and Octroi Charges, depending on the government Tax structure. So, ABC Tiles create a godown (manufacturing plant for namesake) in Maharashtra and then sell its products from there. The benefit they get is HUGE by doing this. They get Octroi Benefits as well as CST tax benefits.

Now as GST comes into picture, there is no need of these godowns. The tax charges that will be incurred will be symmetric allover. So whether they sell interstate or within any territory, there is no need of these godowns to take such benefits. The only charges that will be applied will be Freight charges and the GST Tax that will be mandatory. So the expenses towards those godowns and all will be vanished. And what I feel is even the sector of Logistics will be a great beneficiary of this.

Now look at the wider picture and consider a little Longer horizon. GST will make competition tough, finally making any consumer a winner. Even the SME business can enter into bigger segment due to this, as taxes for every company will be the same.

In this scenario, the most affected people will be small traders who used to work on significant lower level (those who used to just transfer material from one place to another to get tax benefits) as till now they didn't used to take any VAT/CST number and just trade without any existence making our system vague and not transparent enough. You can even see the slowdown in the economy now, as most traders are unsure of the effect and have stopped their purchase until the clarity. I have seen the market and if I talk about textile market, none of the retailers wanna take risk and dump the material unless it is synchronized. Also, there are few risk takers in this market and trust me, those risk takers will be benefited the most. Infact they are already started to get benefits.

EXPLANATION: If I am a wholesale trader of some company like Lux/Rupa, I used to get a cartoon at the rate of Rs 780.00 earlier. Now those who took risk looking at the forecast of GST, they have pre-ordered the cartoon and got the benefit as the rate is now increased to Rs 860.00 (Increase of whopping 10% in one shot). So, a wholesale trader who has pre-ordered handsome quantity is getting a good amount of benefit too.

Overall, GST will benefit people as prices will come down which in turn will help companies as consumption will increase. A transparency in the system will be achieved which is utmost in countries like INDIA.

!!!.HAPPY INVESTING.!!!