In the last article, we saw why it is necessary for a company to prepare a plan and list of activities to get ready for GST. The question often asked is where does one start?
Termed as the biggest tax reform since independence, it is crucial to understand that GST is not merely a tax change but a business change which is likely to impact various business areas such as Finance, IT, Supply Chain, HR, Marketing etc. On one side there could be a huge impact on the supply chain, and on the other there may be a requirement for redeploying people and different advisors as the three taxes (Excise, Service tax and VAT) would merge into one single tax. The best way is to form a group within your organization by assigning representatives from each of the major functional areas like sales, marketing, finance, IT, HR etc. The next logical step is to understand what GST would mean for your business, perhaps by engaging an expert to speak to this group or organize an internal presentation. This should be followed by a detailed impact analysis in all these areas – using all numerical data that is available at disposal.
Our experience in handling GST impact assessment engagements suggests that such impact assessment and its follow up is a time consuming and complex process. Take the example of tax costs that are likely to reduce under the GST regime due to the free flow of credits. Analysing and quantifying such a reduction in costs may involve time, and understanding its impact on product prices would need some more time. However, the most time consuming process would be renegotiating contracts with vendors and customers based on such pricing analysis, especially in case of companies having a large number of vendors. It would take time and energy as it involves dealing with humans and their sensitivities.
In many product segments, India is very price sensitive – that may be due to the basic psyche of the Indian buyer. A company needs to analyse the impact of GST on prices so as to decide the price strategy in the days prior to and after the GST launch.
Businesses do not operate in a vacuum and one has to ensure that the organization does not fall behind the competition in gearing up for GST. The first mover would definitely have a better advantage and it is possible that once the impact assessment starts, many other opportunities would surface requiring more time.
“The time is always right to do the right thing” said Martin Luther King Jr in one of his speeches . For a CFO braced with multiple challenges of Ind AS, IFC and the the Companies Act, 2013 there is perhaps no alternative but to follow this quote.
Recent development on GST
The Committee headed by the Chief Economic Adviser Dr. Arvind Subramanian on Possible Tax rates under GST submitted its Report to the Finance Minister on 4 December 2015 suggesting a Revenue Neutral Rate (RNR) of 15 percent, standard rate of 17-18 percent, low rate of 12 percent and a sin rate of 40 percent for the proposed nationwide Indirect tax. Amongst other recommendations, the executive summary of the report suggests rationalizing exemptions in GST regime, eliminating 1% tax on inter-State trade and the inclusion of real-estate, electricity, alcohol, petroleum in the GST ambit.
With such positive recommendations, the Committee in its concluding observations has stated, “The time is ripe to collectively seize this historic opportunity”.
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