India Inc's preparations for GST: Firms scramble to streamline operations

Less than three months left for the roll-out of the goods and services tax (GST) on July 1, a large number of businesses are scrambling to streamline their operations to make them compatible with the new unified tax regime.

While big companies across a range of sectors, including consumer goods, auto, e-commerce, retail, real estate and telecom, have already done some work to reorganise their structures and functions, small and medium enterprises (SMEs) are far behind the curve. 

“SMEs are just about kicking off their preparations by appointing consultants,” says Sachin Menon, partner & head – indirect tax, KPMG. “It is unlikely they would meet the July 1 deadline, because it takes at least five to six months to prepare from start to finish,” he adds.

Of the large corporates, not more than 40 per cent are truly ready for the GST roll-out on July 1, conversations with multiple tax experts suggest.

Retails majors such as Future Group and Shoppers Stop Ltd say they have begun the process of being GST-compliant and are likely to meet the deadline.

“We are ready for GST to a great extent. It is a big change, and we cannot predict everything now,” Kishore Biyani, group chief executive officer (CEO), Future Group, says.

Ajay Seth, chief financial officer (CFO), Maruti Suzuki, says the company has an internal cross-functional team that has been working on various aspects for GST compliance. 

“We are configuring our business processes, IT and ERP solutions based on clarity available on GST. A roll-out plan for migrating to GST has been prepared, which include an impact study, managing transition, changes required in IT network and training,” Seth explains. 

Shapoorji Pallonji Real Estate’s CEO Venkatesh Gopalkrishnan says, “There are a few gray areas that we are trying to understand. We should plug the gaps soon.”

E-commerce companies are getting a detailed GST analysis undertaken to assess the impact and changes on various fronts, including financials, cash flows, working capital, IT infrastructure and operations.

Consumer goods giant Nestlé, for instance, is evaluating the realignment of its warehouses and supply chain. The company is exploring locations to set up hubs and shut down some distribution centres. “We are trying to figure out the locations where we can set up these hubs,” says Suresh Narayanan, chairman and managing director, Nestlé India. “While investment will be required to realign warehouses and build hubs, in the long term, returns and cost efficiencies will be higher,” he says.

Currently, consumer goods companies end up with warehouses in every state to avoid paying a two per cent central sales tax (CST). However, unlike CST, the integrated GST (IGST) for inter-state sales will be part of the input tax credit chain for refunds, which is the core of the GST.

Says R Sridhar, vice-president-taxation, Coca Cola India, “Since the IGST is creditable, depot consolidation will now happen. We expect more IGST billing to happen for which we are preparing ourselves.”

Sushobhan Dasgupta, MD, Johnson & Johnson Medical India, says, “While we will take 15 days to switch to the new system, for complete normalcy it will take around three months.”

Despite the challenges, some companies remain optimistic. “I had the benefit of shifting to India in 2015 from Malaysia, which happens to be the last country to have moved to the GST,” says Roland Folger, MD & CEO, Mercedes Benz India.