The Goods and Services Tax (GST) has been introduced for around a year now. Industrial Production, for the period April-December, experienced a growth of 4.6%. In the previous fiscal, it was 3.7% for the same period.
The role of GST in India’s manufacturing growth story is summarised below:
1. Simplification and subsumption of taxes
GST has certainly given relief to manufacturers from the erstwhile excise duty. Excise duty was quite complicated to calculate. It had different calculation methods like Ad Valorem duty, Specified duty, etc., making it difficult to estimate. However, with the introduction of GST, all these methods are now streamlined into an easier to derive tax structure. Further, many inter-state taxes such as octroi, central sales tax have been subsumed under GST. This has considerably reduced the burden of indirect taxes on manufacturers. Therefore, both manufacturers and end customers have benefitted from GST.
2. Business efficiency
Earlier, different states had different supply chain taxes in India. However, with its ‘one nation-one tax’ motto, GST has restructured and streamlined these supply chain taxes, thus resulting in business efficiency. For example, with efficient tax structures, manufacturers don’t need multiple warehouses in different states. Therefore, manufacturers can concentrate more on increasing business efficiency.
3. Reduced cost of production
With offsetting, simplification, and subsumption of different taxes under a single tax structure, GST has reduced the production cost of manufacturing goods. This has also reduced the burden of indirect taxes on manufacturers as well as consumers. Earlier, manufacturers had to pay extra production costs, around 25-26%. This was more due to the cascading effect of taxes like VAT (Value Added Tax) and excise duty. Therefore, erstwhile taxes were levied as per two different taxable events. This problem is now solved with the introduction of GST, thus resulting in cheaper goods.
4. Easy registration
Earlier, manufacturers had to register their factories within a single state. With the introduction of GST, manufacturers only have to apply for individual registration, irrespective of the number of factories within a state.
5. Relief from lengthy assessments
Previously, manufacturers had to go through a chaotic and extremely lengthy tax assessment procedure. They faced difficulty resolving various tax queries related to complex and varied taxes like VAT, central excise, sales tax etc. Separate assessment authorities were responsible for assessing different taxes. However, with the introduction of GST, state authorities estimate the SGST (State Goods and Services Tax), and central authorities look after the CGST (Central Goods and Services Tax) and IGST (Integrated Goods and Services Tax).
Apart from the above benefits, GST has made business easy for manufacturers by relieving taxes under the composition scheme. Further, the interim budget 2019 has cheered small manufacturers by giving GST registered MSMEs a 2% loan interest discount (Micro Small and Medium-sized Enterprises). Therefore, GST has accelerated growth in the manufacturing sector.
Additional reads on GST:
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