Goods and Services Tax (GST) is poised to transform India into one single common market, which in turn, will lead to increased ease of doing business and huge savings in terms of logistics cost for companies, irrespective of the sector. It is true that some companies will gain more as the GST rate will be lower than the tax rates which the companies currently pay. Some on the other hand might lose, as the tax cost may be higher than the GST.
GST will add the much needed fillip to the Indian economy as GDP is expected to grow 2 to 3 percent, as a boost in exports and consumption is being anticipated. GST will also lead to an increase in the amount of tax revenue as the number of tax payers will rise and evasion will be lessened. Service tax however, can expect a slight hike.
GST will in addition iron out compliance issues. Let’s discuss the GST impact on the overall wholesale marketplace:
More whole sellers will have to pay taxThe GST regime will bring a large segment of the wholesale business under the tax regime which is currently not the case. The new uniform and centralized taxation system will double the addressable market size for online wholesale.
Likewise, it will make inter-state procurement and supply of goods much easier and seamless. The presence of the multitude of direct and indirect taxes doesn’t augur well for businesses. The removal of multiple taxes like entry taxes, octroi and municipal taxes, makes it far easier to do business on an all India level. The free movement of goods and easy processes around tax credits will bring forth increased efficiencies in the supply chain. In the medium to long term, one can expect aggregation and consolidation of suppliers.
The overall cost of doing business will come down and also, the prices of goods. This in itself will result in larger demands across multiple sectors. Wholesale B2B marketplaces are doing their bit to benefit the wholesalers in its folds. They are making an effort to make required changes in their IT systems and processes to meet GST compliance standards. Many marketplaces are helping SME wholesalers/manufacturers to implement GST in their own business, through workshops and awareness creating sessions.
Furthermore, since GST is one unified standard rate which is charged on all products all over India, it removes the multiple obstacles of large variances and different tax rates prevailed in VAT. Goods and Services Tax also harmonizes central and state tax administrative mechanisms, which in turn reduces duplication and high compliance cost. Moreover, such a tax regime will do away with additional duty, CVD, special additional duty components of customs duty etc.
Goods and Services Tax will remove excise duty concepts which will result in augmented manufacturing as GST is levied at the time of sale and supply of products rather than the time of removal of products from the factory. This will lead to more distribution and wholesale of products.
Wholesale businesses will benefit indirectly from GST
GST taxation will move from manufacture, sale or provision of services to supply of goods and services, therefore branch transfers will be constituted as supply and would be taxable however eligible for full credit. Since octroi and entry tax is removed, the wholesalers and distributors will be indirectly benefited.
The Goods and Services Tax has further made the tax base much broader than what it used to be earlier. This is necessary for reducing the tax rates and will help in eradicating the classification disputes. GST has replaced the most indirect tax in the country, which will help distributors and wholesalers to lower their tax burden.
Moreover, under the GST regime, there are common formats for tax returns, payments, and refunds. Traders based out of multiple geographies across India will find it simpler to comply with this new unified tax structure.
Since, there is no scope for a cascading effect under the GST regime, prices of goods will fall and distributors will witness increases in revenue, due to lower taxes.
With GST, tax load will be uniformly and equally divided amongst the entire supply chain which includes the wholesaler and distributors.
Therefore, keeping these aspects in view, it would not be wrong to conclude that GST will greatly help traders and manufacturers in multiple ways. GST will guarantee one uniform tax, one common market, distinction between goods and services, simpler invoicing, abolition of entry tax, common exemptions between the center and states, no excise tariffs, removal of classification controversies and additionally, a zero rating which in my opinion will be more comprehensive and easier to deal with.
