Business

Industry Settling In To The GST Regime Gradually

The introduction of GST on July 1 has been met by textile traders' strikes throughout the country. Gujarat, Tamil Nadu, Maharashtra and other textile producing states have witnessed widespread protests by the industry and trade, against the GST. While some sections of the industry are protesting against the tax entirely, others are protesting against the high rates of taxes that will leave a burden on the industry.

The agitations bring to light the fact that even after demonetisation, a large part of the textile trade still works on cash transactions, and the number of unregistered players has not really come down, which was expected to be a fallout of the government's demonetisation drive. The powerloom sector, which has been largely out of the tax purview, is strongly opposing the GST regime, as it now will have to pay a tax of 5% or 12% depending on the fibre used. Powerloom textile traders too will have to now pay a tax, something that is very new to them. Traders who would complain of being harassed by tax authorities now have a chance to do hassle-free business.

But it seems that tax evasion and bribing authorities was more profitable. On the other hand, there is a section of the industry that is protesting against the tax rates and the procedures. This segment of the industry is justified in its demands, as the industry seeks clarity on the GST system, or is advising the government on the need to reduce certain rates to avoid unclaimed credits.

The industry has pointed out that in many cases the 12% and 18% rate of tax will lead to an increase in imports of textile inputs, further hurting the domestic industry. Also, there is anticipation that cotton prices in India would move up in the coming months as cotton will be preferred even more due to its lowest tax rate compared to synthetics. This in turn will increase demand and thus price of the natural fibre. It is learnt that many spinners have begun a shift from blended yarns to cotton rich and 100% cotton yarns. Cotton spinners are worried too that this increase in production could result in huge inventories of the yarn, leading to downward pressure on prices. So, while cotton prices could be moving up, spinners may not be able to reap margins.

We know that apparel consumption is subdued in most of the important markets, slowing down exports. The industry could be looking at tough times again. Meanwhile, reports are pouring in that weavers' protests and strikes are being called off, gradually. And raw material uptake has begun. The new tax regime will face teething problems till clarity is established on all fronts. A number of clarifications have been issued by the government. For instance, the government has clarified that exporters can furnish bond or letter of undertaking instead of paying Integrated GST at the time of exporting goods and services from July 1. And in case the IGST has been paid, exporters can seek refund of the tax paid. IGST is levied on the supply of any goods and services in the course of inter-state trade or commerce. For seeking IGST refund, an exporter will not be required to file any application as the shipping bill having IGST invoice details shall be deemed to be an application for refund of taxes paid.

The Union Finance Minister Arun Jaitley launched a mobile app "GST Rates Finder", which helps users to find rates of GST for various goods and services. It can be downloaded on any smart phone and can work in offline mode, once downloaded. These initiatives are aimed to serve as a ready reckoner on GST rates. This will empower not only the taxpayers, but also the citizens, to ascertain the correct GST rate on goods and services.

Logistics costs could go down 20%

India's logistics sector would gain the most from the goods and services tax as costs would fall by almost 20%, Road Transport and Shipping Minister Nitin Gadkari said.

He added, companies could do this with a hub-based warehouse system instead of having warehouses in all major consumer states. The checkposts at state borders have already been brought down. Karnataka, Andhra Pradesh and Tamil Nadu, along with 20 more states, have dismantled border checkposts, reducing hassles for trucks.

Several others are in the process of doing so. The border checkposts have been removed even as states await electronic way bills, which will make truck movement easier.

India is a growing economy and the high cost of logistics, currently at 14% of GDP, was having a negative effect. The average speed of freight transportation has been increased from the current 20-25 km per hour to 40 km per hour. Trucks that were earlier doing 200 km a day would do 400 km now.

An ASSOCHAM report has confirmed that the GST is saving trucking time on trunk routes, connecting top cities, between 24-36 hours besides saving the fleet owners Rs 5,000-7,500 per trip by way of corruption at the octroi and sales tax/VAT check posts which have since been dismantled by most of the states.

"Thankfully, that has been done away and one hopes a new avatar is not found for the same. For now, it has come as a big relief for the transporters who say, the ultimate advantage is accruing to the customers and to the trade and manufacturing value supply chain".

"One hopes that the GST is implemented in earnest by all the states in coordination with the Centre and comes out as a success story for the country", the chamber said. And that is what we are not witnessing. States have begun levying new charges and duties, over which the Centre has no control.

The worrying question is whether the price benefits will eventually spill over to the final consumer, or will the states play spoil sport?