 "GST")
Gearing up for the goods and services tax (GST) roll-out on July 1, companies and retailers face challenges including inventory planning, logistics, budgeting and working capital requirements as they transit to the new regime. Whether dealers build on the inventories or not depends on the rate of claims to be set under the GST regime.
The GST Council on Monday broke a deadlock on contentious issues of administration over assessees, the right of coastal states to tax economic activities within 12 nautical miles (one nautical mile equals 1.8 km) and broadly agreed to roll out the goods and services tax on July 1.
Experts say even now it is not certain when the GST will be introduced. With no decision on the revised implementation date (the earlier tentative date was April 1), industry players would need to revisit their GST transition strategy with a plan for a few months beyond April 1, resulting in dual compliance.
“It could also pose certain additional challenges for many organised players with regard to their year-end activities, including areas such as inventory planning, budgeting and working capital, which were aligned to a timely GST roll-out,” said Krishan Arora, partner, Grant Thornton India LLP.
While, according to the draft law, companies can claim credit for taxes paid under the old regime to avoid double taxation, the second-stage dealers face uncertainty because they are not in the loop as regards the excise duty paid by the manufacturers as they don't buy inputs directly from them.
“The government is yet to prescribe the rate to claim refunds for the second-stage dealers. If it is higher than the prevailing rate, dealers may be encouraged to buy more till the GST is rolled out. If it is lower, they may hold purchase,” said Satya Poddar of EY. Chances are that the rate to claim refunds will be set lower than the prevailing rate, because of which dealers may postpone their purchases.
A lot of companies, according to experts, have started doing the impact assessment of the GST. Many others are planning to consolidate their warehouses and carrying out efficiency assessments.
The next meeting of the Council has been convened on February 18. By then, the changes of various Bills — Compensation, Integrated Goods and Services Tax, Central Goods and Services Tax, States Goods and Services Tax — will be worked out. After that, these could be passed by Parliament and the assemblies.
Meanwhile, the rules and procedures and segment-wise GST rates will take time till March to be completed, pushing back the introduction of the GST from July 1. Harishankar Subramaniam, national leader, indirect tax, EY, said while the transition would be painful, companies were more or less prepared for that.
“Moreover, the roll-out is from the beginning of a quarter and, like all transactional taxes, this is not a problem. The companies will have to look again at the supply chain. A majority of companies have been preparing for the last six months.”
Companies have started considering consolidation of their warehouses. “They may look at consolidation with respect to speed for market. Many companies are studying the efficiency. Some will be implementing it from July 1, others will do it after that,” Subramaniam added.
Three factors will play a key role in the preparedness — setting the date, the final laws, and the final rules for planning by companies. “Companies will need to plan stocks, information technology systems etc. Therefore, we need finalisation of rates, laws, rules and the roll-out date. It will be a challenge,” said Saloni Roy of Deloitte.
