India Inc comes to grips with GST

The implementation of the Goods and Services Tax was expected to help India Inc in three ways. One, segments that faced serious competition from unorganised segments were expected to benefit with the spread of the tax-net under GST. Two, tax incidence was expected to move lower as companies claimed input tax credit (ITC) on services and other payments that were not available for deduction earlier.

Three, logistics expenses of many companies were expected to drop due to the decline in transit time as the number of check-points reduced and consolidation of warehouses took place with the new tax rollout. The transition to GST was, however, far from smooth for corporates as confusion over transition credit that could be claimed on inventory carried over from the prior regime caused de-stocking in many segments, such as consumer durables and furniture.

Many companies halted production in the two to three weeks of June to prevent inventory getting carried over. This saw revenues of some companies decline in the June quarter of FY18. However, India Inc seems to have regained its mojo in the September quarter with companies regaining momentum in sales volume.

Godrej Consumer Products, for instance, reported domestic volume growth (year-on-year) of 10 per cent in this quarter, after recording just 0.1 per cent growth in April-June 2017. Dabur’s domestic volumes moved up 7.2 per cent against a slippage of 4.4 per cent in the June quarter. Hero MotoCorp’s volumes grew 11 per cent, higher than the 6.2 per cent in the three months ended June 2017. With smaller companies having trouble complying with the GST-filing process, the Centre has given leeway to these businesses in filing tax and has also increased the threshold for companies filing tax under the composition scheme.

This will impede the shift from the unorganised to the organised segment. Also, claiming ITC is difficult with the GSTR 2 and 3 for July not yet filed.

With time, these issues are expected to be ironed out. Also, with the lowering of the tax rate in the November GST Council meet, many FMCG, consumer durables and capital goods makers stand to benefit.


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