GST: PANACEA FOR IT TRADE?

Considering the financial structure in
India, Pranab Mukherjee, the Union Finance Minister rolled out the
Annual Budget keeping an eye on the 'common man'. After a long
process of deliberations amidst the government officials and the
ministry, in this year's href="http://www.dqweek.com/Balanced-Budget">Union
Budget, the Finance Minister has
finally announced the launch of Goods and Services Tax (GST) to be
implemented by April next year. This is being seen as a welcome
development by the Indian IT industry, who are of the view that it
will create a 'sort of free trade zone' and will enable a
homogenous price pattern across the nation eradicating the much
debated 'indirect taxation'. Besides, it is felt across the
industry, that it will also get to see equality across the country.
It is well understood that GST will do away with most of central
indirect taxes, such as excise and service tax, and VAT; as well as
subsume local levies like Octroi and purchase tax at the state level.
GST also requires a complete overhaul of the state tax
administration, which will create a seamless pan-India market, with
both manufacturers and service providers having the right to offset
state taxes paid on inputs sourced from anywhere. The Center and the
States have been
engaged in talks over the proposed GST for about four years. Since
2007, the government has been trying to introduce the new tax regime,
under which GST will subsume most of the indirect taxes of the Center
and the States.

However, there are a few states which
are opposed to the idea of GST and are proving to be the stumbling
blocks for its implementation. In fact, there is a lot of opposition
from those states that have some apprehensions and some unnecessary
fears regarding the GST. The government needs to reach out to the
states disagreeing with the proposed GST provisions to resolve their
apprehensions. Here, it will be right to say that GST
implementation is a progressive measure aimed at removing bottlenecks
and smoothing the process of taxation. At the dawn of the GST regime,
all states will follow uniform rate of tax for all products which is
bound to reduce classifications and trade disputes also. Currently,
many states are classifying the same product in different categories
of classification of goods and rate of state tax. With GST roll out,
all states will follow similar process of regulation such as forms
requirements, filing of returns and its assessments thereafter.

THE VISIBLE IMPACT ON IT INDUSTRY

The implementation of GST is seen as a
welcome development for the IT industry. In fact, the earlier it is
implemented, the better it would be for the industry. It will
simplify the business in many ways, as India will turn into one huge
single market. Introduction of GST will bring uniformity in the tax
issues. It must be also noted here that the flaws in Central Sales
Tax (CST) lead to the idea of GST. Apparently, there is a lot of
discrepancy in CST, which is demanding the implementation of GST in
India. With the introduction of GST, there will be no confusion in
the taxes.

Alok Gupta, CEO, Softmart Solutions
said, “GST will give equality to every citizen in the country, who
is in some business or the other. Here, everyone will be allowed to
do business in an ethical manner. GST implementation will definitely
streamline the business and more efficient people will survive.
Though there will be some casualties, but it is for the betterment of
the business. If I am not efficient, I will not survive. It will give
everyone equal footing. We will have parity and everybody will be
equal in terms of competition. We will also have equality across the
country.” Echoing his views on the same, K Jaishankar, MD, Ingram
Micro India, stated, “There are lots of positive impacts with the
GST implementation. First and foremost is that we can consolidate and
make our distribution infrastructure much more efficient. Today, our
warehousing and supply chain network is based on taxes rather than
the rate of supply chain and logistics. So, we expect that there
would be significant cost saving and supply chain activity would
become much more efficient. It will significantly improve our
distribution business per say, wherein we can stock and move goods
freely across the country without worrying about tax implications. It
will also optimize working capital, inventory, and make our business
much more efficient.” Even the vendors operating in the country are
of the view that GST will most certainly have a positive impact on
the product and commodity pricing. The overall tax payable will be
lower and hence the customer will benefit due to reduced prices. So
once GST is rolled out, they are assuming that there will be
significant increase in the business velocity and it will also allow
for faster and free movement of goods within the country.

Ranjit Yadav, Country Head-Mobile and
IT, Samsung India, pointed out, “GST implementation is good for the
IT industry because it will revamp the existing system of tax
calculation and remove all the existing anomalies. While the details
of GST implementation are awaited, we do expect it to remove the
anomalies like differential
VAT and streamline the taxation process. Besides, the standardization
of taxes should definitely smoothen the process, both for the
government and the industry.” V Krishnan, GM-Marketing,
Imaging and Printing Group, HP India, said, “With GST
implementation, managing the pricing, in the India market for HP,
would become much more simplified. And when GST is implemented, we
expect excise/CVD/VAT/CST and Octroi will be consummated into one
tax. Also goods can now be moved freely within states. Besides, it
will bring in an increased efficiency in the whole system."
“Today, we have a confusing scenario prevailing in our country. But
once GST is implemented, the whole taxation process will be
streamlined and it would become much more easier for us to do the
business. Dealing with government is one major concern in this
country and therefore, we need to have a clean process so that the
hassles are minimized to a great extent,” said Diwakar Nigam, MD of
Newgen Software.

THE PRICING FACTOR

The immediate benefit that we will get
post the implementation of GST is that there will be clarity in the
billing procedure. While it is good for states that have higher
consumption of goods and services, and lead to better revenue
generation for them; the lessdeveloped states will witness fall in
collections. Moreover, the pricing of commodities will become uniform
as state taxes will be done away with a single structured taxation
system. There will also be growth opportunities for partners, as
prices will stabilize across the nation. “We agree that
implementation of GST is a welcome development for IT industry.
However different states have different regulatory process, various
form requirements and different rate of state taxes. This increases
investment, the transaction cost apart from the delay of shipments.
After implementation of GST, inventory and investments level will
reduce, transaction cost also will reduce. Delivery time will also
reduce a lot,” added Suresh Pansari, MD, Rashi Peripherals.

Adding further, Jayesh Kotak,
VP-Product Marketing, D-Link India, said, “Implementation of GST
is definitely a welcome step not only for IT sector but for
industries across the vertical. GST is most likely to simplify the
existing taxation system which in turn may result in a reduction in
the prices of commodities in the long run, as manufacturers and
distributors would pass on the benefits of the lower costs of
carrying on their businesses to the consumers. In fact GST by default
is supposed to increase efficiency; and even if there is a dual GST,
it will still be lower than multiple incidents of indirect taxes in
different states.” “Effectively, prices should reduce. People
will be able to take credits for the taxes
paid. For example, excise duty paid today becomes part of the product/
cost and no one can take credit for it; but in the GST
regime, input credit will be possible,” asserted Rajesh Kothari,
CEO of Blue Chip Computers. From the software perspective, the GST
roll out will clear the ambiguity of whether software comes under
services or goods. As of now, it is considered both goods and
services and that's why the partner are paying both the taxes. GST
will bring software in either goods or services category. Currently,
the software partners are paying VAT, as well as service tax, but
with the GST, there will be only one tax. So, when the taxes are
reduced, prices will subsequently come down.

However, some partners feel that while
GST will increase uniformity of the tax issues, there would be a
likely rise in the price of products. As there was no centralized tax
before, so some lump sum would be added to the product, which will
result in a burden to the customers. While on the one hand, GST will
lead to clarity in the taxation structure and hence only one standard
form of tax will be applicable on products across the country, on the
other hand, its implementation will lead to an imbalance as far as
product pricing is concerned. “Though all the confusions pertaining
to service tax and VAT will get removed, the overall prices of the
products are expected to increase. This will result in great revenues
for the government. Another worrying part is-what direct tax impact
it will have from the TDS perspective,” highlighted Sudarshan
Ranganathan, CEO, Veeras Infotek.

CROSS-SELLING ACROSS THE COUNTRY

It is predicted that the GST roll out
will give an opportunity to the channel partners to expand their
business and sell in other states without facing any of the prevalent
trade hassles. It can help the partners in upcountry to grow, as they
won't have to pay additional taxes and they can expand their business
across the states. GST will allow the distributors and vendors to
maintain different forms in the state and central tax issues. Though
GST will lead to an increase in the paper work, it will also develop
transparency among the distributors and vendors. Additionally, most
companies today have multiple warehouses across various locations in
order to avoiding double taxation, and this result in operational
inefficiency along with implications on cost structure. With GST in
place, there will be greater revenues for the industry due to
increased efficiency, as the time lost due to various type of stock
movements across state borders will be taken care of. GST would also
remove the cascading effect of indirect and direct taxes and hence
this would result in a reduction in the cost of doing business. One
of the leading national distributors in the country, Rashi
Peripherals is of the opinion that after mplementation of GST, it
will be able to improve on its commitment to deliver products in
time. The company can also efficiently move the stocks from any
location in India to any other location based on demand. Currently
these movements are restricted due to various form requirements.
Prices more or less will be at par in all location except
freight/distance element in the cost of goods.

“Also, GST implementation will allow
tax offset if goods are moved out of states. Currently, movement of
local tax paid on goods are allowed, but it increases the transaction
cost as off-set of tax paid is not fully allowed. In the IT industry,
projects are implemented nationally as well as region-wise. To
complete projects in more than one state, we end up paying double
tax, most of the times,” added Pansari. However, a faction of the
industry believes that this new tax regime would lead to an increased
and stiff competition in the market, as it would give all partners
the ability to do business across the country by just sitting in
their respective states.

BENEFIT OR END-USERS

It is also being touted that the
implementation of GST is expected to further rationalize the prices
for final consumers. The consumer stands to benefit on two accounts —
firstly, GST negates the cascading effect of direct and indirect
taxes as logically they can be charged at the point of sale to the
consumer at the base price, and secondly, it has been noticed that
most companies have multiple warehouses to avoid double tax and this
results in sever implications in cost which is ultimately borne by
the end-consumer. But with implementation of GST such distribution
inefficiencies will be taken care off. The details of the GST are
still not known as the complete proposal for implementation is still
to be discussed in the public domain. Currently, services are taxed
at 10 percent and the combined indirect taxes on most goods are
around 20 percent. But various cross industry association
recommendations have been that the maximum aggregate tax, post GST
would be 16 percent, and in such a case, the final consumer would
stand to benefit.

Furthermore, GST implementation will
rationalize prices for final customers, as GST will be same for all
India. Currently different states levy different type of local tax,
thereby the price are different even in neighboring states due to
different state levies. Many products are having dual or more than
one MRP, based on state levy. Main reason for this is local taxes.
After GST implementation all type of duplication of levy will be
reduced. Also GST will be levied at the same rate, all across India.
Any customer can buy from any part of India at same price. “It will
definitely bring down the cost of goods in some cases because there
is a lot of double taxation in our industry. Furthermore, it will
bring down the cost for final consumers as well. The headache of
complying with so many taxes is unbearable at times,” said Chetan
Shah, CEO, Xpress Computers.

APPREHENSIONS PERSIST

A lot of apprehensions still persists
in the industry regarding the way GST will be implemented. The
industry experts feel that bringing all the states on the same wave
length is going to be very taxing for the government. It also
requires massive computerization, skill-sets training, etc; both at
the Central and State level. Looking at these aspects, the industry
has a doubt whether GST can really be implemented in a year's time.
Ajaya Kumar, CEO, Park Group said, “As far as my observation goes,
we are seeing a mixed response in the industry. While doing an
exercise to see how it would affect my company, I didn't come to a
conclusion. Unless it is implemented, processes are defined, it is
very difficult to predict anything at this point of time. Frankly
speaking, we have no idea about its impact on our business.”

The main point is who will get the
revenue and how will it be shared. There will be a bitter fight
between states and the center. Here, the states will lose the power,
as they control the taxes now but with this implementation, this will
go out of their hands.

ONE MASSIVE PROJECT

The GST project is one of the biggest
IT projects in the country, as it involves every business in the
country. Each and every business would have a GST number with a
centralized database. This means that over four to five crore
entities will be utilizing this service. There will be enormous
amount of database that will be interconnected, which means that it
will be as big a project as UID.

However, implementation of GST is going
to be a big task. It is because it will involve credits and debits to
different states, intra-state transactions where proper credits and
debits have to be given. So, this infrastructure has to be built
before GST is implemented. For the IT industry, this is going to be
very positive step. It will also lead to reduction of black money in
the market. Meanwhile, after GST implementation, IT infrastructure
will strengthen as whole India will be connected.

“One of the reasons why states are
reluctant for GST implementation is the settlement/ share of the GST
to the state. The current VAT and CST are originbased taxes; hence
the state is responsible for tax collection. Now, with the
implementation of GST, it will be central tax system with Center
sharing the tax receipts. Hence, for a fast settlement, a robust IT
infrastructure will be required at the government level or for dual
purpose settlement with the states along with increased transactions
due to better compliance. The government, therefore, will have to
implement new or enhance the current system to support the GST
implementation,” concluded Kotak. Most of the states will require
to provide off-set of taxes paid to any other state on the same
goods. Businessmen will require support from IT hardware. Current
manual operation may not be able to control business processes. In
fact after the implementation of VAT, many SME/shops shifted from
manual to computers. All these will require help of
broadband/connectivity etc, which will add to the revenues of IT
industry.