GST prompts a change in business model

Goods and Services Tax (GST) can be a game-changer that propels India into the big league of developed nations, says Mamta Binani

Alignment of the revenue collection through a destination based tax structure for maximum effect, to my mind, is a major take away for the imminent GST regime in the country. PM Modi’s Government should be and will be remembered for the historic reforms in the country that also align tax laws with the contemporary business environment.

During the past decade, the issue of reforms in the Indian tax system has held centre-stage at the highest policy forums. In order to reform the tax system according to internal and external factors, the Goods and Services Tax (GST) framework was proposed in the 2006-07 Budget. A consumption or destination-based tax levied on the basis of the ‘destination principle’, as a comprehensive tax regime GST covers both goods and services and is collected on the value added at each stage of the supply chain. Moreover, GST paid on procurement of goods and services can be offset against that payable on the supply of goods or services.

Indeed, not only will the new system integrate the fragmented market in the country into one massive entity, but will also potentially impact financial aspects, the overall operating ones in terms of supply chain, IT system and marketing strategies. All in all, it will overhaul the entire business model, which as the practitioner of the craft of managing companies - the company secretaries will look up to and welcome. 

A seamless transaction to the GST entails adopting a business transformation approach. Advance planning and realignment of value chains prior to implementation of GST will give a competitive edge to organisations, though intricacies of law are yet to unfold. As such the Draft Model Law on GST gives a clear peep into the fundamental framework of the proposed law and calls for a proactive approach in embracing GST as a strategic opportunity to gain a competitive edge, streamline the business model and drive efficiencies to boost profitability and value.

Today, we have one country comprising of different markets. Under GST, there will be one country and one market. Significant cost reductions in supply chain will be possible under GST by rationalisation of the warehousing and transport systems. Withdrawal of entry tax/octroi will reduce transit time of goods transported through trucks. Check-posts are likely to be withdrawn, unless required in sensitive places for internal security purposes. In other words, integration of the domestic market via GST will improve economic efficiency and needless fragmentation of supply chains will be minimised. India will be truly transformed into a common market, almost seven decades after political integration.

Mamta Binani, president, ICSI

A uniform tax structure across India will eliminate cascading taxes and curb compliance costs. In a nutshell, GST will be a game-changing reform for the Indian economy that would facilitate creation of a common market with minimum exemptions and maximum compliance. Sometimes, both service tax and VAT are charged on a single transaction. GST will eliminate such double taxation, thereby reducing overall costs and boosting the ease of doing business. The proposed law is a step towards a standard tax law across the country which will subsume multiple taxes under three categories of GST. This will go a long way in marginalising the overall compliance cost and burden

Recently, issues have emerged particularly in sectors such as e-commerce, artificial intelligence and other IT/ITeS enabled products/services. GST proposes to introduce concepts of ‘Electronic Commerce’ and ‘Electronic Commerce Operator’, thereby aligning tax laws with the contemporary business environment. Also, with GST, e-commerce businesses could be streamlined to a greater extent.

Under the existing indirect tax regime, particularly for transactions such as sale of software (especially via download or transfer through electronic media), renting of goods, sale or supply of goods through e-commerce portals across the country, ambiguity often prevails vis-à-vis the jurisdiction they come under. The model GST has a clause stating that Central and State Governments will clearly notify what constitutes supply of goods and not services, what constitutes supply of services and not goods and what constitutes of neither of the two which will go a long way in providing impetus to the digital India initiative.
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Mamta Binani is the president of Institute of Company Secretaries of India (ICSI)