ONE NATION, ONE TAX: IT’S AN ECONOMIC REFORM
GST is now a reality after nearly three decades of debate on whether it is good for a country the size of India with the many class differences among its people.
Since the new law is yet to sink in among business establishments, they are still very confused about it. The three different set of taxes –CGST, SGST and IGST still need a lot of deciphering by the business class, especially the MSME sector, which is yet to grasp the nuances of the new law, especially the reverse taxation process related to the input costs, which basically removes the tax-on-tax methodology and results in paying multiple points of taxes.
I personally feel that business establishments need to be given time to completely come to terms with the new tax regime for it to be understood to the fullest. As we are quick to adopt to change, our business processes and the use of technology will make the new tax system simple and good in the long run.
The new law is just not a tax reform, but also an economic reform. It may not lead to a decline in inflation or improve economic growth significantly in the short term , but it will benefit both India Inc and the government in the medium term.
While the new regime is expected to strengthen India's tax system, it could face initial hiccups in implementation. GST is likely to result in a nearterm disruption as this is a massive economic reform being implemented in the country. On the macro level, the one nation- one tax policy is likely to receive positive response on Dalal Street although we cannot rule out initial knee-jerk reactions. Different stocks will also remain on the radar on the back of their monthly sales numbers. The Purchase Managers Index (PMI) data , which is an indication of manufacturing activity, is also scheduled to be declared next month.
Its possible that the investors' sentiments and expectations may not be met in the short term, but it will be a positive change for the listed entities over the medium to long-term. However, more than the domestic factors it is the global risk that haunts us more.
There are some immediate changes that each of the companies need to make to make sure the transition to the new regime is seamless such as restructuring their operations, insisting on invoices, strengthening the supply chain to offset taxes paid on inputs, and so on.
While the impact on companies varies due to the existence of production units in the excise exempted zones, implementation of GST should result in cost savings in the supply chain network and expedite a shift from the unorganised to organised trade.
To sum up I believe that we are now in the disruption mode, but it is just a matter of time before this smokescreen is cleared. The Goods and Services Tax will ultimately turn out to be a ‘Good and Simple Tax’