For the past few years and more so recently we have been hearing a lot about GST in India. With the GST being finally being passed in both the houses let’s discuss the impact of GST on the trade & distribution fraternity of India. Let’s not forget a huge number of small and medium businesses (dealing with Trading/Wholesaling/Distributing/Retailing of goods in India) would be impacted due to this new Tax reform.
1) Clarity on Goods and services
Businesses like restaurants, which fall under both sales and service taxation, have to calculate the VAT and service tax on both items separately. But now there will be a clarity on whether the same will be considered as goods or services. Yes, restaurant business will now be considered under Services.
2) Removal of Cascading effect of taxes
Under the current regime, VAT/CST (state tax) is levied on the value inclusive of excise duty (Central Tax). Hence there is tax on tax. But the same will be changed with the One common base for charging GST i.e no SGST shall be levied on CGST thereby reducing the price of goods.
3) Composition scheme
Huge benefit for small traders, as they have the option of discharging tax on %age of turnover without maintenance of any invoice level records as required to any supplier under the GST law.
Compliances for a supplier under the composition scheme will reduce.
Needs to file only one return GSTR-4 per quarter instead of three returns GSTR-1, 2 & 3 per month applicable for other suppliers. All small traders who are transacting only within the state, small Kirana shops have benefit of opting for Composition scheme.
4) Time of supply under continuous supply of goods
There are the specific provisions available for determination of time of supply under continuous supply of goods in GST regime, which will help the traders in determining the date on which invoice need to be issued in respect to the current regime when there was no such concept.
There is the MRP based valuation for Central/ State laws under the current regime. Also, the Post clearances/sale discount is not allowed but the same will be been changed to Transaction value based valuation along with the clarity on the inclusion/ exclusion of specific transaction under the GST regime. There will be the positive impact due inclusion of post-sale discount in calculating the transaction value.
6) Applicability variances and tax differentials
There is the large variances and differential tax rates for the VAT applicability across states which will change to Uniform rates and single system of applicability under GST thereby introducing the Simplified system of taxability.
7) Cross utilisation of credits
Traders were not eligible to claim input tax credit on service tax but now under the GST since there is only one tax i.e GST so, the traders will be eligible to take the credit on both goods and services due to which there will be a huge benefit to the trader community as the impact on working capital will be reduced due to allowance of service tax paid.
8) Credit of input CST on Interstate transactions.
Currently,Input CST is a cost to the trader but the same will be available as a credit under the GST Regime.
9) Credit of CVD
Currently, the credit of CVD is available only to a manufacturer and service provider due to which it becomes a cost to the trader but after the GST the traders will also be eligible to take the credit of such tax.
10) Passing-on of CENVAT Credit
Under the current regime, traders passes on the CVD and SAD credit to his customers when he is not in a position to utilise it due to which Customer gets to know his purchase price.There will be no such concept under the GST Regime of passing-on the CVD and SAD credit, due to the levy of GST on the ‘Point of Supply’ (POS) i.e the purchaser is entitled to take the credit, thereby a positive impact for traders.
11) Entry tax/ Octroi
Currently many states charge the entry tax with the rate between 1 to 5% but the same will be subsumed once the GST comes into force.
General events like fraud, collusion etc. which attract penalty have been prescribed under the current regime which will changed to penalty for 20 specific situations thereby reducing the ambiguity with reference to events for levy of penalty.
Under the current regime, multiple registrations need to be taken separately under different laws, subject to different threshold limits but the same has been changed to single threshold limit for all the states i.e registration has to be obtained in every State of operation if the aggregate turnover crosses 20lakh(others)/10 lakh(specified areas) This will increase compliances.
2) Time of supply of goods under forward charge
Specific dates prescribed under the GST law for movable goods and goods not required to be removed.Also, the advances are subject to GST thereby effecting the Cash flow and working capital
3) Time of supply of goods under reverse charge
Applying the concept of Reverse Charge Mechanism on goods, currently applicable for specified services is going to hugely impact the trader community.
4) Time of supply of goods when goods are removed before it is known whether such supply will take place.
Under the GST regime,any goods sent as sample or for approval will now be taxed if not brought back within six months of date of removal irrespective of whether, the same has been actually converted into a supply or not.
5) Stock transfer
Inter-State Stock transfer under the current regime is not taxable but the same will be construed as ‘supply’ under the GST regime and accordingly would be leviable to GST.
Under the current regime,not all states have the mandate to match the seller and purchaser’s records but there will be a greater compliance under the GST regime as the seller’s data is to matched with the purchaser’s data.
Number of returns to be filed will go up substantially i.e 3 returns every month plus annual return. Also, there is no concept of revised return under the GST regime due to which compliance will be increased and entity should have robust accounting and inter controls to ensure correct filing of returns.
So, we can conclude that overall there would be positive impact apart from the compliance which would adversely affect the traders.