Right, so here’s what we have. The government has decided upon rolling out a four-tiered approach to the Goods and Services Tax (GST) reform.
The four GST slabs, as of now, are 5 percent, 12 percent, 18 percent and 28 percent. Now, automobiles are expected to be in the 28 percent slab, but smaller cars aimed at the aam aadmi may get a rebate.
What’s got most folks cheering is that reworking the tax structure reduces the burden of inflation on our country.
What does it mean for Manufacturing, and why is it important?
Now the manufacturing sector, on the whole looks favourably upon GST, and why not? When a product (let’s say a car) is manufactured in a certain state in India and exported to other states, the manufacturer has to shell out a two percent Central Sales Tax (CST).
With CST out of the picture, origin tax is eliminated, and therefore, the manufacturer can hope to see more market demand.
“In the manufacturing industry, there’s a uniformity of taxes across states. Right now, there’s a different pricing structure across different states. Now with CST and VAT going away, your purchase decisions can be faster. Also, we anticipate goods moving faster. In addition to this, we also see better sourcing opportunities,” says Anil Kulkarni, GM-IT (ERP & PLM) at Larsen & Toubro Ltd.
Kulkarni added that there will be a spiralling effect on demand. It won’t happen tomorrow. But he believes there will be an awkward impact on the economy, and the cost of logistics will come down.
From an IT infrastructure perspective, the implications are massive. The ERP will have to be remodelled and all those fields will have to be created in the ERP. “So we’ll have to make the documentation process very streamlined. All the inputs going in for commercial processes have to be captured correctly, and human intervention completely removed,” adds Kulkarni.
A major challenge though, Kulkarni believes, will be to file the data on a timely basis, because the returns have to match both the customers and the suppliers.
Clearing up the muck
“A lot of the ‘under-hand’ dealing will go away, and the system will become more transparent. So, the `fair practices’ of a lot of corporates are are going to be brought into the picture. It’s like when you go to a shop and avail a 20 percent discount, you really don’t know if you paid a fair price. The concept of parallel economy is going to be wiped out,” explains Kulkarni.
The GST rollout is also being well-received by the top guns in the steel business. “We’re expecting some positive business following the GST implementation. Overall, for the country, inflation can be controlled. The slabs and rates will be made more uniform now, so that’s good for our economy,” says Vijay Bhaskar, DGM-IT & CIO, Visa Steel Ltd
Bhaskar believes that there will be a lot more transparency in the process, and life will be made simpler. The steel manufacturer also foresees logistics rates coming down.
The real question, now: What does it mean for your IT infra?
“From an IT infrastructure point of view, once people migrate to new models, things will be more stable as there won’t be many changes from there on,” says Bhaskar.
DV Seshu Kumar, Head – IT, Orient Cement Ltd is not too worried about the IT revamp at his organization. “
Since we’re using the latest ERP, we don’t foresee a major overhaul in the IT infrastructure. But, from the application-front, we have to change a lot. The supply-chain management, though, is going to change drastically,” says Kumar.
Sr. General Manager – IT at Ramco Cements Ltd, Murugesan Ganapathy, seconds Kumar’s foresight on supply-chain being impacted. “As a matter of fact, we’re still not very clear on how we’re going to handle all these changes. We’ll be brain-storming with our chartered accountants next week to put together a GST rollout,” says Ganapathy.
“We’ll also now have to figure out how to handle all the pending work orders and purchase orders. Now, if we have 40,000 items, we’ll have to implement this in all of them, and it will be time consuming,” he adds.
All swell, but did you read between the lines?
Something really important for manufacturers to consider is that most manufacturers with very large investments are provided state incentives, based on the current VAT and CST rates. Now with CST out of the window, the manufacturers could take a hit.
Jai Prakash Yadav, VP-IT, Maruti Suzuki India Ltd brings to light the immense amount of resources and time required to accommodate the changes brought about by the GST.
“There’ll be a massive shortage of manpower when it comes to implementing the GST. A lot of consulting needs to be done, and processing of taxes will be more cumbersome than it currently is,” he points out.
There’s also this ambiguity on freezing upon the retail prices goods are sold at.
“I’m an eternal optimist. But, when I talk to legal experts, there are a lot of areas in which I don’t get answers for. For instance, what is the scheme for deciding MRP?” questions Aneel Kumar, Head – IT, Goodyear India Ltd.