GST can reduce cost of indigenous goods by up to 10%: Khaitan & Co

The Lok Sobha has passed Goods and Services Tax (GST) Constitutional Amendment Bill today. Earlier Finance Minister Arun Jaitley while debating on GST in the Lok Sabha today said the implementation of GST will provide uniformity of taxation. “Whole process of indirect taxation will change post implementation of GST,” he said.

Jaitley said the implementation of GST will give a fillip to the trade and avoid tax on tax. It will also increase states’ tax collection. “Any loss of state government’s tax revenue will be compensated by the centre for 5-years,” he added.

Nihal Kothari, executive director, Khaitan & Co. said, ”The introduction of uniform Goods and Service Tax throughout the country is now on horizon with passing of the 122nd Constitution Amendment Bill by Lok Sabha today. GST will replace multiple indirect taxes levied by central and State Government such as excise duty, service tax, VAT, entry tax etc. It is going to change the way people do business. If it is properly administered it will increase GDP rate by 1 to 1.5%, Tax-GDP ratio up to 2% and reduce the cost of indigenous goods up to 10%. Hence it is win-win for all stake holders including industry, State and Central Government revenue and the consumers.

The proposed GST will be uniform across the country which will reduce the cost of compliance and litigation. Availability of seamless credit throughout the value chain will remove the cascading effect of taxes on cost of goods and services thereby making indigenous manufacture more attractive. Consequently the import and export parity will change under GST regime.

The investors need to take note of this mega tax reform while making any investment in India as the cost of doing business in India will change significantly. GST will change the way enterprises do business in India. It will lead to consolidation of manufacturing to get economy of scale without any tax disadvantage & efficiency in supply chain.

The existing businesses will have to restructure their business structure and processes to remain profitable and competitive. This mega change will have significant opportunity to leverage on GST and do value analysis of their business model and processes and re-engineer to optimize benefit.

In the short term the transition to GST will need to be managed efficiently to ensure tax compliance and to protect unutilized tax credits while ensuring continuity of business without hiccups.”


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