Policy

Uncertainty looms as GST roll-out just a fortnight away

Our Bureaus | Updated on January 12, 2018 Published on June 14, 2017

Big discounts A shop woos customers during a pre-GST sale in New Delhi   -  Kamal Narang

Keeping fingers crossed Tobacco farmers in Ongole, Andhra Pradesh   -  Kommuri Srinivas

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While some sectors oppose the new tax regime, most see confusion in implementation

Almost every one believes that the Goods and Services Tax, all set to come into force nation-wide from July 1, is a welcome tax reform. But given the complexities involved, they are not sure how things will pan out.

Most agree there is bound to be confusion, which they hope will get sorted out quickly, even as there are those who are vehemently opposed to the new tax regime.

BusinessLine puts together reports from its correspondents across the country on what various players think of the switch-over to a single, nation-wide tax system that will replace a myriad number of State-level taxes and levies.

Auto parts supply chain

“There is no major change of our parts supply to OEMs. However, some of the OEMs want to make invoices till June 25 only due to concerns over credit as a consequence of transition to GST,” said the CEO of a tier-2 supplier to Tata Motors.

As of now, he said, there wasn’t any rescheduling of parts supply to OEMs, but he felt that there would be some slow down in stock movements in the last week of June.

“Our stock movements will be based to OEMs’ requirements and we are not seeing any major signs of slowdown in stock movements due to GST transitional reasons,” said a senior official at a tier-1 supplier to OEMs. Though the GST Council has provided some respite for inventories stocked up till the month-end by raising the limit on input tax credit to 60 per cent from the earlier proposed 40 per cent, some suppliers still are concerned whether they will get any input tax credit for the stock they are holding.

Top officials of a leading passenger car maker and a commercial vehicle manufacturer confirmed that their companies and supply chain were fully geared for GST regime and pointed out there was no change in supplies from parts makers due to the transition.

Short-term slowdown

The packaging industry is bracing for a short-term slowdown in manufacturing activity as companies look to stagger their production due to drop in primary sales. This is largely because dealers and distributors across industries are focusing on selling out their pre-GST inventory to start with a clean slate from July 1.

With the GST Council announcing the new GST rate fitments, dealers and distributors have restricted new purchases of stocks from companies.

For instance, the consumer durables industry, where retailers are running discounts and special promotional schemes to dispose their existing stocks. Similar sales are doing the rounds for branded apparel and cars. Packaging companies anticipate there will be a complete stop in primary sales in the run-up to the GST kick-off deadline.

Vimal Kedia, MD, Manjushree Technopack, “We anticipate a slowdown in manufacturing from June 20 as companies prepare for GST roll out. We believe once the dust settles, we will see a pick up again from first-second week of July.”

He said there is likely to be delays in capital good purchases for manufacturing units especially excise exempted areas such as Assam, Himachal Pradesh and Uttarakhand as companies will want to claim input credit on such purchases, once GST is rolled out.

RK Jain, President (Corporate Finance and Accounts), Uflex, added that the bigger companies had started preparing for the GST roll-out in terms of inventory management and production.

Large volume businesses such as paper and cement trade are going slow ahead of the shift to the GST regime. Traditional business practice of dealing in cash by small traders, uncertainty over systems and processes and worry over possible losses in compensation in the transition from VAT and excise duty to the new tax regime are worrying the trade.

Traders prefer to keep stocks low to avoid confusion when the GST kicks in.

Keeping stocks low

According to a leading importer of paper, printers are going slow on paper purchases. They want to familiarise themselves on the new systems and procedures. Paper typically changes hands a couple of times and there are worries over online filing and claiming input credit. Also, there is the issue of small traders who have dealt primarily in cash so far.

While the large paper mills are relatively more organised, the smaller mills have an issue.

A leading paper trader said in the transition from VAT and excise regime, traders are allowed to take credit for just 60 per cent of excise paid. "Supply chain is choked as nobody is taking stocks in the last 15 days," said the trader.

Even organised players who take over 500 tonnes stocks a month have cut back to about 300 tonnes as they do not want carry over stocks. The number of traders coming into the tax net will increase as the limit of ₹50 lakh is low in the paper business. With the price of paper ranging around ₹70,000 a tonne, even those handling a couple of lorry loads a month will be covered.

A senior executive in a cement company acknowledged that dealers prefer to “finish the account this month”. While there are no issues in intra-State sales, inter-State sales could be a little more complicated. Also, small dealers who had earlier dealt in cash are worried over the new systems and processes.

Big buyers stay away

“Confusion over GST rates has kept big buyers away from the market,” said Inderjit Singh, a trader in Khanna new grain market. Only when buyers from outside come there will be a spurt in demand which will, in turn, push up the prices.

Tobacco body unhappy

Logistics and shipping companies have welcome GST. According to G Sambasiva Rao, Managing Director, Sravan Shipping, a major logistics company in Visakhapatnam, GST will make life easier for the industry, as multiple taxation is avoided. “Most of the tax travails will be gone and we can now focus on productive work,” he says.

The Guntur-based Indian Tobacco Association (ITA) feels GST will hit tobacco cultivation, processing and exports as well as cigarette manufacture. GST is to be levied at 5 per cent on leaf tobacco and at 28 per cent on unmanufactured (raw) tobacco sold to domestic cigarette manufacturers as well as exporters. “Former Prime Minister Charan Singh encouraged tobacco cultivation by abolishing the Central excise duty on it but this Government wants to stifle the industry, on which millions are dependent, by imposing GST,” says M Umamaheswara Rao, President. The organisations of tobacco farmers have also condemned the GST and urged the Government to roll it back.

Fertiliser sector

The fertiliser sector is quite apprehensive of GST, as the proposed 12 per cent rate applicable would affect the sales.

At present, there is no tax on fertilisers in Kerala and Tamil Nadu while it is 5 per cent in Andhra Pradesh and 5.5 per cent in Karnataka.

The insistence on Aadhaar, finger print and PoS etc for fertiliser sales also have an adverse impact on the sale as most of the farmers are illiterate/semi-literate.

Senior officials in the public sector FACT said that the company would get a small relief by way of slight increase in the Factamfos subsidy – per tonne subsidy being hiked to ₹6,488 from ₹6,085.

The sale of Factamfos gradually picks up momentum following good rain in Kerala and will take a couple of weeks to reach peak sale. By that time, the monsoon will be active in Andhra Pradesh and Karnataka.

The expected sale for June is 70,000 tonnes and the company has a stock of 65,000 tonnes of Factamfos and 8,200 tonnes of Ammonium Sulphate as of June 1.

Fall in rubber prices

The sharp fall in rubber price will have its impact on fertiliser sales in Kerala, the officials added.

(With inputs from Abhishek Law, Kolkata; Ch RS Sarma, Visakhapatnam; V Rishi Kumar and KV Kurmanath, Hyderabad; R Balaji, Swathi Moorthy and G Balachandar, Chennai; Meenakshi Verma Ambwani and TV Jayan, New Delhi; Rahul Wadke, Suresh P Iyengar and Tanya Thomas, Mumbai; Vinson Kurian, Thiruvananthapuram; V Sajeev Kumar, Kochi)

Published on June 14, 2017
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