GST which promises a unified tax system for the supply of goods and services in India is finally here and is all set to redefine the taxation in India. Widely regarded as the catalyst to revolutionise indirect taxation in India, the manufacturing industry, in particular, is going to be replete with some major changes that will ensure India to become a single nationwide market.
However, the Entry Tax has certain limitations. One of the major changes which have come into force is the abolishment of multiple taxes, especially the entry tax such as Octroi which has been subsumed under the GST. This entry tax has been characterized as obnoxious, vexatious, wasteful and distorting and was claimed to have caused cascading, multiple taxation and distortions in the previous tax structure. Besides, there were several other issues attached to entry tax such as time wastage owing to holding up of goods traffic at the Octroi check posts, production losses resulting from hindrances to goods traffic and primarily, the inability to unload all the goods vehicles and check them before making the assessment. Studies also revealed that India’s long distance truckers were parked 60 per cent of the time. This also leads to incessant delaying of delivery of goods at destinations. Moreover, as this tax was levied by local civic bodies on the mere entry of goods into its local area, while being collected in cash at check-posts by the road side, keeping accountability of such cash transactions was a major hurdle.
With the removal of the entry tax, here are a few ways the manufacturing industry is set to benefit in the GST era:
1. Free flow of goods and services:
Implementation of GST has allowed for the free flow of goods and services within the common market of India. This means that we can finally say goodbye to the detrimental entry tax system which was seen as an impediment to the free flow of trade while also proving to be a source of competitive distortions and inefficiencies in the supply chain. Furthermore, implementation of GST has also ensured the unparalleled flow of the movement of goods by road transport.
2. Reducing Overall Cost of Production:
Along with a common market in the absence of CST and entry tax, sub-summation will also help in reducing the overall cost of production. GST is widely expected to liberate the sector by unifying tax regimes across states. For instance, certain goods were being sold only within that particular state so as to avoid incidences of taxation which were not credited at the stage of manufacturing or in the course of trading. With GST however, manufacturers can now sell their goods all across the country owing to the absence of CST and entry tax. Additionally, with the subsuming entry tax, goods and services will also get cheaper as the supplier or manufacturer will not need to pay the entry tax rate amount and consequently, not charge the customer this amount either.
3. One tax:
GST will subsume all central and state taxes to ensure a single tax rather than multiple taxes. This ensures removal of cascading which will result in a lower cost-to-consumer as well. Previously, manufacturers were not eligible to claim the tax credit on inter-state transaction taxes such as Octroi, central sales tax, entry tax etc. This resulted in the manufacturer having to bear the liability of cascading effect of taxes which meant that the consumer had to face the brunt of it as these extra costs were simply offloaded on them. Thanks to the implementation of GST, these multiple taxes will now be eliminated which results in lower costs of production and in turn, a lower pricing for the end-consumer.
4. Simpler Invoicing
In the previous tax regime, invoicing was a major complication as it used to be detailed with a summary of multiple taxes on goods and services which could often be a source of confusion as well. GST lends clarity as only a single tax rate will now be mentioned in invoices.
5. Ease of Registration
Thanks to GST, the registration process has become incredibly simple and seamless. The previous tax regime was overly complicated and required manufacturers to register each manufacturing unit as a separate entity even if they fall within the same state. However, GST has simplified this process by permitting a single registration for all units falling within the same state.
In general, one can state that the impact of GST on the manufacturing sector is positive. It provides a distinct opportunity to streamline business operations to become more compliant and profitability-oriented, rather than tax-oriented. It puts power in the hands of business leaders to bring about positive change and steer their enterprises on an upward graph, powered by the GST compliance.
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