GST’s major implications on manufacturing sector

GST – the single tax system that aims to put an end to India’s indirect taxation – is here. Some of the main proposed benefits of GST are monitoring of tax payment, ease of continuing business, and fewer tax frauds. Read the complete article to find out how these can have positive results in the manufacturing domain.

Manufacturing and ‘Make In India’

Only 16% of India’s annual GDP consists of profits earned from the country’s manufacturing sector. However, this does not mean that this sector cannot grow and contribute far more to the yearly GDP. Narendra Modi, the Prime Minister of India’s “Make in India,” stresses the growth of the domestic manufacturing sector of the country.

GST’s Impact on Manufacturing

GST is among the significant policy alterations that have directly influenced India’s manufacturing establishments. So far, the tax structure of the country has been complex. This results in the manufacturing sector’s slow growth. GST can liberate this sector through the unification of tax regimes all over India.

So, as per expectations, GST will positively boost manufacturing in the following ways:

  • Removal of several valuations will simplify the process: Different states have different means of calculating excise duty. The result of this is a big confusion in the methods of assessment. With GST, valuation will be based on transaction only.
  • Improvement in cash flows: Under the improved tax laws, manufacturers will be free to demand tax credit on several input goods. It will improve cash flows.
  • The supply chain will be restructured: Those businesses will have to realign supply chains. It is a real blessing. With a separate tax regime, supply chains’ primary focus will be business efficiencies.
  • Sub summation of entry tax will lessen the production cost: As the entry tax will be subsumed, the production cost will reduce.
  • A single process of registration will give comfort to manufacturers: As per the old regime, manufacturers had no choice but to register every manufacturing facility separately. GST will simplify the process of registration.
  • Lowering of cost-to-consumer: The old tax system prohibited manufacturers from claiming the credit on entry tax, and other inter-state transactions. So, cascading of certain taxes became common. With GST, there will be no multiple taxes.

These are the aspects that concern the manufacturers:

  • Increase in requirements of working capital urgently- GST will treat Depo transfers and bank transfers as taxable. IGST will apply on such transfers. According to GST rules, advance receipts are also taxable. These two things will increase the necessity for immediate capital.
  • More elaborate and stringent management of transaction- For achieving better tax system, manufacturers will have to streamline existing transactions. It includes additional cost and resources.
  • Local exemptions lack clarity- Under GST, many local exemptions will be removed. It will have a negative impact on specific manufacturers.

Overall, it is safe to say that GST’s impact on India’s manufacturing sector is definitely positive. It offers a rare scope of streamlining the country’s business operations, making it less tax-oriented and more productivity-oriented. So, the business leaders will get a fair chance to prosper.

Posted in Money