GST Tax Impact on Manufacturing sector

With a couple of months away from GST implementation, many businesses are looking to understand how the goods and services tax will impact them. Among others, manufacturers are researching and analyzing now how this tax reform can usher in growth and opportunities for them.

The manufacturing industry has always been a major economic driver for many developing economies across the world, however India has not been able to profit fully from its advantages in this area. By changing the current cascading tax system to the goods and services tax, there are high hopes that the more direct and transparent GST system will lead to a manufacturing synergy in India.

Key changes for Manufacturing:

Now

Taxing occurs at each stage of the supply chain

Trader pays excise tax, but cannot claim excise duty credit

State border checkpoints and state entry taxes

Excise tax to be paid for manufacturing business with turnover above Rs. 1.50 crore

GST

Reduced taxation, reduced cost of production - tax is applied only on the added value

Taking input tax credit/utilizing credit - trader will not be entitled to full GST credit

Saving time and money on transport with the elimination of state entry taxes

Turnover limit has been reduced to Rs 20 lakh

Potential problems for businesses:

Compliance: Ensuring all invoices are kept and tax returns are filed on time.
Adopting GST: not knowing what to do might cost a business more than it has to give. Planning ahead for adopting GST is crucial.
Knowing where your money is: As the registration limit has been lowered to turnover above Rs 20 lakh, businesses will need to stay more organised with their inventory, costs and income.
Adopting technology: Since all GST processes from filing taxes to claiming tax credit is done online, manufacturing businesses need to be prepared to adopt the right technology and software to help them do their work better.