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Indian industry welcomes proposed GST
August, 18th 2010

The proposed Goods and Services Tax (GST) has been welcomed by the Indian industry and is being projected by some as the mother of all tax reforms of the century, according to survey results from KPMG-Confederation of Indian Industry.

GST is slated to change the very manner in which indirect taxes are levied and distributed among Indian states.

KPMG -CII Survey was conducted among 200 senior executives of companies from across industry i.e. IT/ ITES, Automotive, FMCG, Pharma, real estate, etc.

The survey captures the views and expectations of the trade and industry regarding implementation of GST. It also summarises the level of preparedness of the industry and the challenges the industry perceives that it would have to face due to this change.

Venu Srinivasan, Immediate Past President, CII and Managing Director, Sundaram Clayton Ltd said that GST would enhance the competitiveness and efficiency of manufacturing sector, improve overall governance and also mitigate the cascading effect of present tax system.

T Kannan, Chairman, Trade, Taxation & Globalisation Sub-Committee, CII-SR & Managing Director, Thiagarajar Mills Ltd said that the proposed reform in the indirect taxation system through the Goods & Services Tax (GST) regime in India would remove tax distortions and enable creation of an efficient and harmonised consumption tax system in the country. GST regime will benefit the system by promoting equity, efficiency, flexibility and transparency in the indirect tax system, he further said.

Commenting on the findings of the survey, Sachin Menon, Executive Director and Head of Indirect Tax, KPMG said, The response to the survey reaffirms that Industry has high expectations from the government on implementation of GST and it is a clear message to the lawmakers to take up introduction of the GST regime seriously as one nation, rising above petty differences

Key finding of the survey are as follows:

88% of the survey respondents prefer having a single national GST enactment, both for Centre and the States. This view may be justified as most the respondents had presence on a pan India basis and they expect GST to be a unifying fiscal legislation across the national market;

44% of the survey respondents consider the GST as an opportunity to consolidate their business operations as GST would transform India into one national market;

84% of the survey respondents feel that GST would have a positive impact on the profitability of the business as there would be seamless flow of input tax credit with no or very limited cascading of taxes;

46% of the survey respondents feel that higher working capital may be blocked under GST;

55% of the respondents have not yet assessed the impact of GST on their pricing formulae/ structure;

40% of respondents feel that change in the IT/ System would be a key challenge with supply chain re-structuring figuring next on the list. Further, 68% of the respondents feel that they would require at least 3-4 months for reconfiguring their IT systems to attune their business to the new tax regime

With respect to the structure of GST, the respondents were of the view that the proposed structure of GST should be simple and business compatible. This view may be justified as most the respondents had presence on a pan India basis and they would be expecting relief from the hardships they faced under the current multiple indirect tax regime.

One of the novelties of GST is the seamless flow of input tax credit for business. The new scheme will ensure that there is no or very limited cascading of taxes. However, while ensuring that this objective is met, there is a possibility that there could be a slight cost by way of blockage of working capital. The respondents have rightly considered this impact and despite this feel that GST would have a positive impact on the profitability of the business. Further, when asked whether the respondents would consider revising the prices of their goods/ services, most of the respondents have not yet assessed the same. The primary reason could be on account of inadequate clarity about the operational impact of GST and finality about the rate structure, etc

Another very important aspect which the respondents have considered is that GST would transform India into one national market. So far indirect taxes played a major role in deciding the supply chain structure of each business as some of the tax cost had no input credit option. The GST precisely addresses this anomaly and therefore, going forward, tax may not be a factor for deciding on the supply chain/ distribution channel of an organisation. Thus, the respondents have rightly stated that they may consider consolidating their operations (i.e. manufacturing locations, warehouses, contract manufacturing, etc) post introduction of GST.

Further, on the challenges that the respondents perceive, they have highlighted that change in the IT/ System would be a key challenge with supply chain re-structuring figuring next on the list. Further, most of the respondents would require at least 3-4 months for reconfiguring their IT systems to attune their business to the new tax regime. However, when asked about the level of preparedness, most of the respondents felt the need for more clarity and awareness to prepare themselves for the new tax regime.

 
 
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