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GST a game changer for manufacturing industry: Are you ready?

GST a game changer for manufacturing industry: Are you ready?

Rahul Garg, Founder & CEO, Moglix

Feb 20, 2017 6:48 PM

GST, the “most significant tax reform” so far in India is poised to enable India Inc to operate under a one-country one market philosophy. One of the biggest beneficiaries of the reform would be the Indian manufacturing industry which conventionally has been plagued with complex taxation systems and multiple supply chain hurdles in inter-state transactions. With its vision of “Make in India” and “Digital India”, the Govt has cleared its intentions to re-invent the Indian manufacturing sector and now it is time for the manufacturing sector to prepare itself for the gargantuan reform. New GST regime will present numerous opportunities for the manufacturing sector to grow and prosper. Organizations will have to reinvent themselves which would involve realigning supply chain, transforming administration and compliance, reforming production and logistics, finding new partners and developing synergies, etc. Given the paucity of time, being at the cutting edge of technology could be the only way out to achieve this humongous task.

From a complex tax structure to modern GST regime

Conventionally, the complex tax structure has been an operational nightmare for the industries in terms of administration and compliance. There are close to 90+ forms under VAT and CST, 13 under Excise, 2 under Service tax along with 300+ annexures and the list goes on, no doubt India is ranked so low in “ease of doing business”. State based tariff incentives would be done away with and businesses would be carried out without worrying about state boundaries. The cascading effect of taxes would be removed as the manufacturers would be able to get input credit even for inter-state procurement. This would lead to reduction in cost of production eventually boosting demand across the value chain.

Restructuring the supply chain

Apart from simplifying the tax structure, GST will also enable smooth flow of goods across states. Presently, trucks spend 40% of their travel time adhering to inter-state checks, submitting forms etc. GST regime will enable smoother and faster movement of goods. Warehousing and logistics would go through fundamental realignment based on factors like economic efficiency and geographical advantage rather than tax/duty arbitrage across states. Entire country would be considered a common and unified market and area based exemptions would be minimized, if not completely removed. Although these developments also pose significant challenges for the businesses which have made high investments in the recent past considering the existing tax regime, it is a great move towards ease of doing business welcomed by India Inc.

Are you future ready?

The Government has made no qualms of hiding its intentions on implementing a tax reform which has such extra-ordinary implications. In response, the manufacturing sector should think ahead of time and be prepared for the structural changes that it would need to embrace in view of the GST roll out. Organizations should evaluate the possible advantage on their businesses and fundamentally re-invent the way they manage indirect tax compliance. As the entire sector becomes more transparent than it ever was, being at the cutting edge of technology would be the fundamental rule to follow in order to succeed. It is now up to the Indian manufacturers to think 2 years ahead and re-invent, as there are only 2 choices available – “adapt and prosper” or “lag and perish”.

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About Moglix

Moglix aims to enable a large section of manufacturing sector to smoothly migrate to the GST regime. Its technology and supply chain knowledge enables manufacturers and the ecosystem with reconciliation of goods, services, Information, payments and taxation, with highest standards of quality, cost and delivery.

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