Implementation of GST will remove tax distortion as well as help manufacturers to access seamless credit across the entire supply chain  Industrial growth and development is necessary for economic advancement. In this regard, the proposed implementation of Goods and Services Tax (GST) is an important step taken in the right direction. It wouldbe a critical reform in the Indian economy and herald a new way of administering taxes. GST is expected to solve a major bottleneck in the domestic manufacturing segment, which is of cascading taxes. As of now, taxes are levied more than once for the same good and companies are not able to compensate them as the market is fragmented. While under GST, taxes would be levied at the point of sale, under the present system taxes are levied at the point of origin. The domestic manufacturing sector is also plagued by existence of multiple indirect taxes and duties, which adds up to approximately 24% of the total cost of products. At the same time it leads to lengthy procedures of tax calculation. Apart from multiple indirect taxes, local municipal levies and complex documentation procedure leads to supply chain imbalance and reduces cost competitiveness of the sector to a great extent. Implementation of GST will help to reduce the supply chain imbalance.
Importance of GST
The implementation of GST will come at an opportune time considering the fact that the Indian manufacturing sector contributes significantly to the country’s GDP. Implementation of GST will help manufacturing firms to make significant savings on the tax front, which can be utilised to increase workforce productivity and enhance product portfolio. It will also help manufacturers to access a common market across the nation and at the same time improve competitiveness of their products. This will reap huge benefits particularly for the small and mid-sized manufacturing firms as they have limited channel of revenues.
GST will bring more transparency into the system and enhance competitiveness as well as efficiency of the manufacturing sector and its overall governance. Implementation of GST would create a level playing field for domestic manufacturers and help them to compete better with their global counterparts. GST would aid manufacturers in accessing seamless credit across the entire supply chain.
A well-designed GST is the most graceful method to get rid of distortions of the existing process of multiple taxation. Therefore, all taxes on goods and services levied by Central and state governments should be included under GST. Some of the current taxes that will be abolished with the implementation of GST are Stamp Duty, Octroi Tax, Central Sales Tax etc.
Road ahead
GST will help to bridge many loopholes in the existing taxation system. The switchover to GST will have momentous macroeconomic effects. The implementation of GST will be a huge relief, as it will bring down the prices of products by removing the burden of several taxes. It is anticipated that the implementation of GST will accelerate the growth of the manufacturing sector and help it to scale new heights. Successful execution of GST will create a win-win situation for both Central as well as state governments and will also make tax collection a much simpler process.
Sudeep Malu, CEO of Sumatex Ltd, a mid-sized textile engineering company in Bhilwara, Rajasthan |
