It took around 17 years for GST to cross the corridors of power and beat the uncertainty to finally make its way into the market which was eagerly awaiting the tax reforms since ages.
It was around two months that the much-hyped and much-awaited Goods and Services Tax (GST) got implemented for which we, at Sign & POP World magazine, were eager to capture the impact on our industry. Keeping alive our inquisitiveness, we first stepped into the local hub Chuna Mandi followed by a few signage making equipment/printers’ manufacturers to note the effects of this newly introduced unique, but complex tax reform. The market was seemingly at a standstill as most of the stakeholders were busy readying their systems in compliance with the GST requirements.
On our repetitive efforts, they agreed to take out some time and shared their respective views on how the industry is making a transition to cope up with the GST regime, which in any case is inevitable and that there is no escape from it. With this impression that a lot of small vendors and service providers are not yet ready to ascertain the GST system, they opted for a small break and are waiting for the system to be in place and then work out the solutions arising out of this sudden shift.
In Chuna Mandi of Paharganj area in New Delhi, we didn’t find many speakers on this front but a handful of them suggested that the GST system, once fully tuned in with all the rectifications, would surely add to the industry’s growth in a systematic manner which was long overdue. Not only this, but also it would put a cap on rapidly increasing unethical trade practices. Amidst all this, none of the stakeholders come forward or provided us with the exact list of items concerning signage industry, falling under GST.
GST in India
As we know, following the Union Cabinet’s approval to the four GST Bills—Central GST Bill, Integrated GST Bill, Union Territory GST Bill and GST (Compensation to the States) Bill, the Goods and Services Tax (GST) has been pitched as the biggest tax reform in India since independence. Like other industries and sectors, everyone in the Indian printing and signage industry welcomed with a hope for things to turn out positively as GST was expected to bring a sweeping change to a lot of business parameters.
It has been around two months now and the time has come for all businesses to consider and measure the impact of the new tax reform. There is no doubt that GST has a far reaching impact virtually on all parameters of supply-chain operations including contractual agreements, pricing, supply models, information technology, tax compliances, etc., and there is a lot to analyse, plan, implement and prepare to take forward the change in taxation system.
Going ahead, none of the players seemed confident when asked about dealing with GST. In general, there is a state of confusion in the minds of many of the manufacturers/suppliers, whom we met, to know the impact. Quite a few of them shared that they were maintaining stock of materials which will run till September, thereby trading only with what they had accumulated before the announcement of new tax system. Keeping in view all this, actual impact of GST can be measured only after the pricing and the system would get revised. However, there is still lack of clarity around what the actual impact on the industry will be.
GST In Malaysia
When GST was implemented in Malaysia, it was experienced that the rollout was far from seamless because of the lack of awareness and preparedness at the receiving end of the tax reform; which led to business disruption, operational issues and delayed compliance for many. One of the reasons for the lack of preparedness was that GST had long been discussed and repeatedly delayed, just as in the case of India. Because of this, the businesses deferred when taking necessary actions until it was too late. When compared with Malaysia, in India, GST is far more complex, with dual GST regimes owing to two tax administrative authorities—Centre and States—which are equally empowered to levy tax on each transaction concurrently.
Impact on Signage Industry (includes signage)
Indian signage industry has been keeping its fingers crossed even prior to the implementation of GST for things to turn out positively. This is because GST has swept away the multiple taxes and taxation points that were practiced in the past regime and were badly affecting the growth of this sector. It has undoubtedly brought a single-point taxation in the country with a rather simplified taxation system. Though a lot is yet to be studied for understanding the current set of unique but complex taxation system, things would be a little more clear and manageable with the passage of time.
As mentioned by Vijay Kandari, Sales Head, Negi Sign Systems & Supplies Co., “If we leave the short term gain or loss and try concentrating on the larger canvas, GST will bring the ultimate solution. Definitely, there would be some level of uneasiness in the trade for the next couple of months, but considering this as just the beginning of a new era of smoothening the process we are happy with it. As far as readiness of the ground is concerned, it would never be completed keeping in view the expanse of the geography the tax reform has been set for. India is a huge country with varied culture & practices where while something stand good for one state, it may not be equally beneficial for the other state given the varied system.”
On a similar note, Vishwa Pratap Singh, MD, Green Tech, said, “Whatsoever is happening, is for the betterment of the country. We admit that we were not ready for it owing to the news of further delay in the implementation of GST in the market. But once the new taxation system is put in place by the Centre, there is no escape from it. we have to abide by and get our system upgraded to be in compliance with the same. It will take some time but overall it is there to help the trade.”
It is expected that seamless flow of input credit, under the GST regime, would benefit the printing industry which was facing issues of blocked working capital due to large accumulated CenVAT Credit balances. Further, it is expected to substantially overcome the gaps which were present in the then indirect tax regime by eliminating cascading effect of taxes and duties which were not getting full input set off. This would surely help the stakeholders of the signage industry to better manage the working capital and plan the expenses.
GST also promotes wider tax net implicating that it’s beneficial to be GST-compliant. The new taxation system has removed cost inefficiencies arising due to the existence of a layer of taxes in the form of Central Sales Tax, Octroi or Local Body Taxes and other physical interstate tax barriers. Nevertheless, the GST regime would improve the cost competitiveness of the printing industry with the unification of fragmented domestic market along with the reduction in cost associated with tax compliance, inventory and logistics.
Concerning imports, GST states that imports are to be considered as supplies in the course of inter-state trade or commerce, and therefore, are subject to the basic Custom Duty plus IGST (Integrated GST). Under the GST regime, full input tax credit is available on such IGST paid on imports. As rightly pointed out by Smarth Bansal, Senior Product Manager, Colorjet India, “Since most of the machine sellers are getting these machines from China on undervalued invoices they will not be able to transfer the benefit to the customers, whereas we make the machines in India we can transfer this benefit to the consumers.”
What our industry does expect from GST!
Most of the industry stakeholders agree that over the passage of time, GST will bring a larger portion of the unorganised sector into the mainstream, which will ultimately change the business dynamics irrespective of the industries or sectors. Moreover, the threshold limit and the exemption list are significantly pruned resulting in bringing many goods/services under the purview of GST, which earlier were outside the tax ambit.
As pointed out by Parag S. Kothari, CMD, Jaysynth Dyestuff (India) Ltd. And Jay Instruments & Systems Pvt. Ltd., “GST means the advantage of cheating has gone and this was much-needed a tool for the trade to instill fair trade practices as well as to help capping the gray-marketing. We are so happy about it. We are one of the organised sector units. We are paying every taxes till date and all he transactions are well recorded on paper. It is really been a harassment for the industry that there exists a gray market for the spare parts where people are importing, bringing in substandard quality, under invoicing, etc. All these will be stopped.”
According to Kothari, it was an audacious task for the government to get 29 states agree to a new regime keeping in view the federal structure. There were so many problems to solve to get the GST legislation in place. It was truly a tremendous job by the government. We are pretty sure that it will boost our business. It’s a great thing for our country that business will be practiced on the books rather than off the books. No doubt that those who believe in shortcuts will have to face some difficulties in finding legitimate ways for practicing the trade,” he added.
With the concept of single/separate registration for each state, an increase in tax compliance obligations has been noted especially owing to the increased number of returns that has gone up to around 37 in a year for a single registration. Adding to it is the matching concept under GST where the taxpayers would have to reconcile their procurement with the sales of their vendors and supply of goods & services with their purchasers on a monthly basis in order to avoid denial of input tax credit is seemingly cumbersome but soon facilitate a transparent give & take.
Although credit of GST paid on inputs at every stage of value addition would be available for the discharge of GST liability on the output, separate credit pools for all three different types of GST – CGST (Central GST Bill)/SGST (State GST)/IGST(Integrated GST) would have to be maintained for each state. The transitional provisions under the GST law entail a list of credits that can be carried forward into the GST regime, on fulfillment of certain conditions.
“There has been a turbulence especially in the domestic sector, although nothing hampered the exports. Let me tell you prior to GST, we always had a parallel economy running and this will take a while to get out of it. Of course, one quarter will suffer out of it but at the end of day I am pretty sure that the industry will come out of it with flying colours. No doubt that there is a level of ambiguity in it which would have stayed otherwise also. We always wished and wanted to have a policy which is transparent with crystal clear picture, but remember whenever there comes a transition, there is a pain attached to it. It will follow the same trajectory as demonetisation which kept the activities at a standstill for two to three months. And thereafter it will be virtually skyrocketing,” asserted Anshuman Nagpal, General Manager-Sales, DCC Print Vision LLP.
So, the need of the hour is not to get confused but to gear up and initiate the process of identifying the potential issues that have emerged while transitioning to GST. For those businesses, which were proactive in preparing and planning in the GST early are at a competitive advantage indicating that early planning and timely execution was necessary to leverage this advantage. It helped to avoid disruption along with being 100% compliant of all legal and procedural requirements under the new law, and manage opportunities effectively with GST in practice.
“There is nothing to worry about as this had to happen either today or a couple of years after. Now, why is it taking more time to be in practice? The answer is simple as we are yet to understand its implementation process. The whole system is to be upgraded, which we already have started and will soon be in compliance with the GST. Though, it will take another one month for being fully put in practice depending on the preparedness of the stakeholders. Even the retail customers or the small vendors have to comply with the same. Once the GST is fully put in practice, it will surely benefit the players like us,” suggested Sunny Thakur of Lakshya Signages.
Impact on Manufacturing Sector
Manufacturing sector has been a growth driver for various developed countries in the past but India’s manufacturing sector has always been a lackluster performer, partly owing to the complex tax structure. Government knows the importance of this sector, and has therefore, taken several steps in the recent past to make India a manufacturing hub at the global level. The newly introduced GST regime with the changing indirect tax structure is expected to act as a catalyst for driving growth of the sector. It has a far-reaching impact on business avenues, compelling organisations to realign bottlenecks such as production cost, production time, supply chain, compliance, logistics, etc.
Bansal of Colorjet feels that GST is a great move. “We expect huge growth in our business as stock transfer is very easy now. We just think that if GST would have been under 10% on machines, especially for those made in India, then ‘Make In India’ could have got another push keeping Indian manufacturers further motivated. We already have our GST registration in place and doing a campaign to educate a lot of customers to get issued the GST numbers to take the tax credit which they will pay on the machines and thus their total cost of ownership will automatically go down. Being the largest manufacturer in India having a market share of approx. 40%, we take every move from the Government of India with positive frame of mind to help us grow along with the industry and the country,” he suggested.
Impact on manufacturers, distributors and retailers
GST which is purported to bring in the ‘one nation one tax’ system has its effect on various industries differently. Experts feel that the first level of differentiation has come with the nature of business – whether the industry deals in manufacturing, distributing and retailing or is providing a service. GST is expected to boost competitiveness and performance in India’s manufacturing sector. Declining exports and high infrastructure spending are just some of the concerns of this sector. Prior to GST, multiple indirect taxes were aiding to the administrative costs for manufacturers & distributors. But with GST in place, the compliance burden has eased out this sector to help it grow more strongly.
As highlighted by Sandeep Kumar of DOC Sign, “The One Nation One Tax was long awaited to facilitate a level playing field for all. Earlier, each state has a different set of taxes resulting in deferred pricing for the same signage in different parts of the country. But now, for one type of signage, the cost would be same across the nation. This is certainly going to help the trade in the long run if not immediately. We have started getting compliance with GST, which will take some time to be in line with the current set of taxation system. Also, for solution providers like us it needs some more investment, which of course, is a one-time investment to bring the trade back to normal.”
Bharat Wadhwa of Vee Kay Enterprises opined that although GST is meant to help the trade but will take some more time to bring the market back on track. “Quite a few retail customers are still absent due to this new taxation system as it has ultimately added to the cost for them. However, for small players getting in compliance with the GST is the only way out for the betterment of the business. The whole process would take two-three months from now,” he said.
Increased compliance requirements
There are still a lot of gaps in GST Act so it is difficult to make predictions about its impact on industry in time to come. However, using the information available we have done impact analysis of GST on manufacturing industry. GST demands businesses to set-up mechanism for meeting the requirements of GST. Increased compliance has closed loopholes in the tax framework, but has increased the costs initially for businesses. Once businesses would adapt themselves to meet the requirements of GST, compliance costs will come down drastically over a period of time.
Reduction of cascading taxes
Input Tax Credit is arguably the most important feature of GST but it isn’t something new for the taxpayers. Under the outgoing system of indirect taxes, manufacturers are allowed to claim most taxes levied on inputs. However, they are not allowed to claim Central taxes paid against State taxes and vice-versa. This often leads to a situation where manufacturers are unable to claim excess credit of central or state levies. Not just these, even Central Sales Tax paid on inter-state procurements was also not creditable, and are costs for the companies.
Another issue is the cascading of taxes at the post manufacturing stage. Dealers, retailers etc. are subject to taxes on their input side which are not creditable (service tax on input services, excise duty on capital goods). This leads to an increase in the cost of goods, ultimately affecting the competitiveness of Indian manufactured goods vis-à-vis imports. All these issues are addressed under GST, which permits tax set offs across the production value-chain, both for goods and services to help reduce the cascading effect of taxes and bring down the overall cost of production of goods.
Contrary to this, Tejender Singh from Mumbai, said, “In the earlier tax regime, Excise Duty (12%), Additional Duty (4%), Basic Duty 10 and Cess (2%) were refunded in the form of ModVAT or concessional rate through a security bond on imports for manufacturers. But in the current set of taxes, both the traders and the manufacturers have to pay same tax/duty for import, which of course, would be harmful on the part of indigenous manufacturers who are driving the ‘Make In India’ campaign. This will certainly help traders to have edge over manufacturers who have setup their factories with much more investment than a traders do in running simply through an office.”
Reduction of classification disputes
Manufacturing sector often struggles with litigations in the current indirect tax regime. These litigations are mostly based on classification disputes. Different products are taxed at different rates while some are exempt from tax under excise and VAT legislations which make compliance difficult for manufacturers. Replacing the layered indirect tax structure with GST, which is based on the principles of a simplified rate structure and minimisation of exemptions will significantly reduce disputes arising from classification of products.
Supply chain restructuring based on economic factors
Businesses structure their supply & distribution models in a way that it minimises their tax liability arising at various levels of value addition. Transition to GST should hopefully result in such decisions being taken to optimise business efficiency (as opposed to indirect tax efficiency). For instance, currently warehousing choices are often based on arbitrage between VAT rates in different States and between applicable VAT and CST rates. With the advent of GST, it is hoped that such warehousing and logistics decision would be based on economic efficiency such as costs and locational advantages vis-a-vis key customers.
Impact of GST on Service Providers
According to a report published recently, as of March 2014, there were 12,76,861 service tax assessees in the country out of which only the top 50 paid more than 50% of the tax collected nationwide. Most of the tax burden is borne by domains such as IT services, telecommunication services, Insurance industry, business support services, banking & financial services, etc. These pan-India businesses already work in a unified market, and while they started noticing that the compliance burden is becoming lesser, there is apparently not much change in the way they function even after GST implementation.