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The role of GST in India’s manufacturing growth story

  • Highlights

  • GST has positively impacted the manufacturing sector

  • The one nation one tax structure has improved business efficiency

  • GST has reduced cost of production

  • It has simplified tax registration and assessment

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 can be summarised in the following 5 points:

- 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. which made 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 like OCTROI, central sales tax etc. were subsumed under GST. This has considerably reduced the burden of indirect taxes on manufacturers. Therefore, both, manufacturers and end customers have benefitted from GST.

- Business efficiency

Earlier, different states had different supply chain taxes in India. However, GST, with its ‘one nation-one tax’ motto, 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.

- Reduced cost of production

With offsetting, simplification, and subsumption of different taxes under a single tax structure, GST has reduced the cost of production 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 cost, 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.

GST Calculator for Manufacturers

- 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.

- Relief from lengthy assessments

Previously, manufacturers had to go through a chaotic and extremely lengthy tax assessment procedure. They faced difficulty in 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 2% loan interest discount to GST registered MSMEs (Micro Small and Medium-sized Enterprises). Therefore, GST has accelerated growth in the manufacturing sector.

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