GST Effect: How is India Inc Responding After the First Month?

The new tax reform was launched with much pomp and fervour at the Parliament on 30 June, at midnight. 

(Photo: The Quint)

Lower inventory as dealers cut stock ahead of 1 July, a dent in margins, supply-chain bottlenecks – the Goods and Services Tax (GST) has impacted India Inc in more ways than one.

Technology, awareness and clarity on tax administration continue to be a challenge a month after the rollout. Yet, the government remains euphoric with the prime minister calling the GST not just a tax but a social reform.

But is that how corporate India is looking at it?

Also Read: GST Council Official Booked by the CBI for Bribery

How Some Corporates Prepared for the GST

VS Parthasarathy, group chief financial officer at Mahindra and Mahindra Ltd, said that GST has resulted in a change in business practices. Earlier, investments were based on incentives but that has changed. And the Mahindra Group has ensured that its vendors and distributors are prepared for the big tax reform as well, Parthasarathy said.

About a year and a half ago, we said we must prepare for this and ‘we’ can’t be just M&M. It has to be M&M and its ecosystem. So, we worked with our vendors, suppliers and dealers. So we went to SAP and developed an output together. We also developed a software called Plan B, if the one with SAP wasn’t ready on time, to make it available to our suppliers for free.

VS Parthasarathy, Group CFO, Mahindra and Mahindra to BQ

This level of preparedness, however, is not universal, Ritesh Kanodia, indirect tax partner at consultancy firm Dhruva Advisors, said. Not all clients have had good experiences in the first month and there are multiple clients who are still not ready for invoice printing, he said.

Also Read: 7.5% Fiscal Growth Likely, Won’t Get Impacted by GST: Panagariya

Classification of goods and services and the subsequent application of rates was the biggest challenge for businesses, experts quoted above pointed out.

Also Read: A Quick Glance at the Tax Rates Before and After GST

Kanodia gave an illustration of a non-banking financial company that is leasing trucks to a goods transport agency.

In the services tax regime, hiring of trucks by a GTA was tax exempt. Today, some clients are taking the view that today, even leasing is exempt because now, there is no differentiation between goods and services. So, one entry was ‘transfer of right to use’ and another was ‘hiring’ – what is the distinction between leasing and hiring? It’s not clear.

Ritesh Kanodia, Partner, Dhruva Advisors to BQ

Also Read: Are Small Businesses Faring Well in the GST Regime?

Corporates Review GST

He pointed out another area of contention – what is movable and immovable and consequently what qualifies as a works contract versus a contract for sale of goods. If you set up an office, Kanodia said, with fixtures and furniture, all the big services providers are raising a works contract invoice and not a contract for sale.

But a works contract applies to immovable property.

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The Supreme Court has laid down that anything that can be dismantled and moved is not immovable. On this point, we’re also dealing with a large metro rail project. So, this was a composite supply for setting up a ticketing system. I can move this ticketing system anywhere I want to; so it’s movable – is it a mixed supply; is it a composite supply? There are lot of such open points. 

Ritesh Kanodia, Partner, Dhruva Advisors to BQ

Classification issues aside, Parthasarathy said GST rates have impacted the manufacturing sector marginally, services industry saw an upward bias and hence an increase in cost for customers, and that administrative complexities for the information technology sector has gone up 10 times.

He said though the lack of e-way bills is proving to be a challenge, businesses are coping with the state-specific requirements for inter-state supplies. “Thoda hai, Thode Ki Zaroorat Hai,” he said.

Also Read: ‘Going Stronger Together’: PM Modi Hopes GST Spirit Prevails

(This piece was first published in BloombergQuint and has been republished with permission)

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