Why India’s oil economy needs prudent supply management

As crude oil price is essentially a supply-side problem, prudent supply management can contain inflation better than through demand management. If inflation arising out of supply shock is controlled through demand management, the entire economy may have to pay a heavy price.

International prices of crude oil have been ruling firm in March 2018, close to $70 per barrel. Several factors are responsible for this buoyancy, which include, inter alia, demand-supply mismatch, global economic recovery, control over daily production by oil producing countries, trade war among major economies, and other geopolitical reasons. This is a major cause of concern for the oil importing emerging economies in general and India in particular.

India is the third largest consumer of crude oil, next to the US and China. The country’s domestic consumption of crude oil, which was 158.4 million metric tonnes (mmt) in 2013-14, seems to have crossed 200mmt in 2017-18. Domestic production continued to remain stagnant, at around 36mmt, during the same period. As a result, import dependency has gone up from a little over 77% in 2013-14 to about 82% in 2017-18.

Historically, the government subsidised consumers by regulating the prices of petroleum products. The fiscal burden arising out of petroleum products’ subsidy crossed Rs 1 trillion in 2008-09, forcing the Union government to deregulate their prices in a phased manner. After the global financial crisis, the fall in international prices of crude oil provided an opportunity to do so without disruption in the domestic economy. While petrol prices were deregulated in 2010, diesel prices became market related since 2014. As of now, while kerosene and LPG prices are still regulated, prices of other petroleum products have been freed before 2010.

As part of prudent fiscal management, the Union government did not pass on the entire benefit of the fall in crude oil prices to the consumers by imposing excise duty on petroleum products. The state governments also collected sizeable amount of revenues from VAT/other state taxes imposed on such products. The oil sector, which has been a major source of receiving subsidy, has now emerged as a major source of revenue for both central and state governments in the deregulated regime (see table).

Currently, the element of taxes (excise duty, road cess and state taxes together) on petrol and diesel at New Delhi has been approximately 48% and 39%, respectively. At Mumbai, the tax element on petrol/diesel is the highest. Dealers have separate margins of about 5% on petrol and 4% on diesel. A sizeable amount of revenues received from the oil sector has significantly contributed to fiscal consolidation at both central and state levels.

In the deregulated regime, there has been a two-way movement of petrol/diesel prices depending on global crude oil prices. The Union/state governments have also reduced excise duties/state taxes on certain occasions when the burden on the consumers has been high. In the context of the recent increase in international prices of crude oil, the consumers expect the government to reduce taxes so that the burden on them shall be reduced, besides anchoring overall inflation.

As of now, the fiscal situation is tight at both central and state government levels, following their commitment to achieve fiscal consolidation. Hence, it is natural for them to avoid cut in the taxes on petroleum products to prevent the fiscal arithmetic going haywire. On the other hand, the persistence of crude oil prices above $70 per barrel for a long period is likely to be inflationary. As indicated by the Reserve Bank of India, the global crude oil price is a major upside risk to inflation in the country. If inflation shoots up, the Monetary Policy Committee shall not hesitate to hike the repo rate at the earliest. The question, therefore, arises as to whether the inflationary impact of the rise in global crude oil prices should be handled through supply management or demand management?

As crude oil price is essentially a supply-side problem, prudent supply management can contain inflation better than through demand management. Under the flexible inflation targeting regime, there is an implicit understanding that the government, besides adhering to fiscal consolidation, has to undertake suitable supply management as and when required. If inflation arising out of supply shock is controlled through demand management, the entire economy may have to pay a heavy price. After demonetisation and GST shocks, India’s economic recovery is at a nascent stage. Unless nurtured carefully, India’s recovery may be short-lived, particularly if the cost of credit goes up significantly.

The oil ministry desires the GST Council to bring petroleum products under its ambit at the earliest. Tweaking of taxes on petroleum products, if any, can be done by the GST Council. The burden of revenue loss in case of a cut in taxes on petroleum products may be borne by both Union and state governments.

It is advisable to bring petroleum products under the ambit of GST at the earliest, at least from the point of view of having a uniform price of each petroleum product throughout the country. But there are quite a few issues that need to be sorted out before central and state GST rates are finalised on each petroleum product.

Being essential commodities, it may not be appropriate to impose the highest GST rate on petroleum products. The local taxes imposed on petroleum products by each state government are widely divergent. Moreover, it may take time to build consensus to bring petroleum products under GST. Adjusting the exiting tax element within 12% or 18%, particularly on petrol and diesel, may be difficult. Hence, both central and state governments may have to go in for reduction in excise duty/state taxes on petroleum products sooner or later, if global crude oil prices persist above $70 per barrel for a long time.

Barendra Kumar Bhoi, Former Principal Adviser and Head of the Monetary Policy Department,RBI.

source : http://www.financialexpress.com/opinion/why-indias-oil-economy-needs-prudent-supply-management/1127519/

GST And ‘Make In India’: A Win-Win For The Entire Nation

Existing economic initiatives, such as “Make in India”, are getting a boost from the new tax regime, at least for the most part

More than eight months have passed since the introduction of India’s Goods and Services Tax (GST), are form intended to revamp the entire taxation system and stimulate economic growth. What’s more, existing economic initiatives, such as “Make in India”, are getting a boost from the new tax regime, at least for the most part.

What exactly is the “Make in India” initiative?

Prime Minister  Narendra Modi launched “Make in India” on Sept. 25, 2014, with the primary goal of making India a global manufacturing hub by encouraging both multinational and domestic companies to design and manufacture products within the country. The initiative takes aim at increasing production capacity, stimulating job creation, and attracting foreign direct investment (FDI) as well.

While the initiative has been successful in positioning India as a global investment destination, FDI surged even more with the introduction of GST, increasing FDI by more than 40 percent. Other aspects, both positive and negative, of the interplay between “Make in India” and GST are also coming to light. Let’s take a look.

Balanced payment positions

One of the most pronounced changes to come with GST is the shift to destination-based taxation. This change has three impacts on the “Make in India” initiative.

A) Imports: The first is that all imported goods and services are charged with an integrated tax (IGST), which is equivalent to central GST and state GST combined together, as they effectively flow into an Indian state. This brings parity in taxation on local and imported products, meaning that Indian-made goods are better able to compete with imports.

B) Intrastate transactions: The fact that cross-state integrated tax (IGST) is the same as central and state GST for intrastate transactions also remove barriers for state-to-state commerce. Prior to GST, the tax implications of making something in one state and selling it in another were as daunting as buying from out of country. By normalizing taxes within and between states, the new tax regime makes Indian companies much more likely to purchase from one another, regardless of in what state the supplier resides.

C) Exports: The most significant impact of destination-based taxation is that, under GST, exports are zero-rated, given they are not consumed within an Indian state. This has been instrumental in boosting Indian exports in the international market. There are also mechanisms built into the system toreward exporters possessing a clean taxation record with an immediate refund amounting to 90 percent of their claims. There have been some difficulties in this regard, but more on that later.

Reduced production costs

Due to the uniformity in tax structure and the seamless flow of input tax credit for both input goods and services, production costs are lower now than under the previous tax regime. Reducing production costs positively impacts the manufacturing hub and is bound to increase manufacturing sector profits in the long run. Further, GST has inspired more innovative production and opened up new markets, increasing production capacity and job creation across the nation. The “one nation, one tax” concept has effectively made geographical boundaries irrelevant.

Free flow of goods

As mentioned above, GST has been successful in removing economic barriers and has paved the way for an integrated economy at the national level, which has also benefitted the logistics sector. Previously, trucks moving from one part of the country to another spent considerable time at border checkpoints waiting for documents to be reviewed and cleared.

Efficiencies in logistics have reduced this time significantly, benefitting the manufacturing sector and, thereby, the “Make in India” initiative. Improvements in infrastructure are expected to bring additional benefits in time.

GST has further increased demand in various sectors such as tyre manufacturing industry as companies previously in a wait-and-watch mode have switched to execution mode. This increase in demand will trigger an increase in production in years to come.

Remaining challenges

India’s GST has not been without its growing pains. One of the most significant hindrance to the success of the “Make in India” campaign has been delays in export tax refund payments. Most taxpayers are required to pay GST at the border in the form of customs duties, then request refunds of those taxes.

However, mechanisms to accomplish this have been late to come and complex for taxpayers to follow. Many exporters are reeling from cash crunches while waiting for pending GST refunds. These exporters have been among the worst affected due to various issues with required documentation in the absence of checklists, and this has negatively affected the “Make in India” initiative.

Some experts also believe that frequent shifts in policies are not sitting well with industry and could ultimately hamper the country’s financial rating. One recent example occurred within the automobile industry. The government approved a bill to raise the maximum cess levied on luxury cars from 15 to 25 percent in order to generate funds to compensate states for revenue loss due to GST implementation. Industry sharply criticised the move, and the country’s largest luxury car maker, Mercedes-Benz, even cancelled its plan to expand under the “Make in India” initiative.

In other areas, GST, coupled with “Make in India” and “Skill India”, is having the opposite effect. In particular, the tax reform and economic initiatives have ushered in a new era for start-ups in the country. Last year, India secured a place among the top 100 countries for ease of doing business — moving from position 130 to position 100, the highest jump any country has ever made.

However, as a whole, GST is still a work in progress. It is likely that, with time, the dust surrounding GST will settle, and it will prove to be the icing on the cake for “Make in India” and other initiatives designed to stimulate the economy.

source : http://businessworld.in/article/GST-And-Make-In-India-A-Win-Win-For-The-Entire-Nation-/09-04-2018-145857/

GST shakes up Indian economy by setting the compliance bar high

On 1 July, the government made an ambitious shift to what it promised was a modern, transparent and technology-driven indirect tax system to sharpen the competitive edge of a $2.3 trillion Indian economy riven by internal trade barriers and a raft of central, state and local taxes.

The goods and services tax (GST) was hailed as the biggest tax reform by India in 70 years of independence, a potential game-changer that would, at one stroke, unite the country of 1.3 billion people into a common market by dismantling inter-state tariff barriers.

GST subsumed 17 central, state and local taxes in line with the “one nation, one market, one tax” concept on which it was based. The new regime had tax slabs for goods and services—5%, 12%, 18% and 28%.

A little less than 100 days since it kicked in, the new system is yet to settle down. While many of the lofty and intangible goals set by the government will take time to achieve, the transition has witnessed inevitable shocks.

Businesses slowed production ahead of the rollout of GST to minimize tax complications while shifting to the new system. This in part led to economic growth in the April-June quarter decelerating to 5.7%, the slowest pace in three years, from 6.1% in the preceding three months.

Businesses and traders also struggled to measure up in the first two monthly tax-filing cycles, making headlines about inadequate preparedness for the massive tax reform.

Growth impact

Going by the experience of other countries that adopted GST, some economists had predicted that the tax reform would boost India’s economic growth rate by up to two percentage points in due course as it eliminates inefficiencies in the tax system.

Under GST, tax is levied only on the amount of value added at each stage in the supply chain. Businesses get a rebate for the taxes paid on raw materials and services used, which will make them more competitive as it eliminates “tax on tax”.

However, the production slowdown in the run-up to the implementation of the tax reform in July has had an adverse impact on supplies.

“The disruption caused by implementation of GST was confined to the informal sector of the economy and it has largely bottomed out in July. Its effect will now taper off,” said Rajiv Kumar, vice-chairman of NITI Aayog, the federal policy think tank.

Kumar endorsed the Asian Development Bank (ADB)’s economic growth forecast for India. ADB, which follows a calendar year, on 27 September revised its 2017 growth forecast for India to 7% from its July estimate of 7.4%, reflecting “short-term disruptions” such as last year’s demonetization and the GST rollout that it expected to “dissipate”.

The disruption caused by implementation of GST was confined to the informal sector of the economy and it has largely bottomed out in July. Its effect will now taper off– Rajiv Kumar, vice chairman of NITI Aayog

Some of the impact on the economy on account of destocking of goods prior to GST implementation has already started easing, said D.K. Joshi, chief economist at credit rating agency Crisil Ltd.

Scale of reform

“In sectors such as logistics, the benefit of GST is immediately visible in terms of efficiency, while a boost to the economic growth rate that GST is expected to fetch is a medium-term goal,” said Joshi.

What brings uncertainty about how soon businesses and the information technology (IT) systems supporting GST could settle down is the unprecedented nature and scale of the tax reform that threw up unexpected challenges to policymakers and to the IT infrastructure.

ALSO READ: GST: Disruptive but developmental

While large businesses have their own IT systems and resources to meet the requirements of GST, the informal sector of the economy, comprising small and medium enterprises (SMEs), bore the brunt of the transition impact.

GST encourages the informal part of the economy to get integrated into the formal one by way of tax rebates to registered assessees. This compels small firms to either sign up for GST or lose their competitiveness and, therefore, their clients.

Integrating the informal economy with the formal one is expected to eventually lead to a wider base not only of indirect taxes, but also of direct taxes.


Technical glitches experienced by many assessees forced the GST Council, the federal tax body led by Union finance minister Arun Jaitley, to extend various deadlines for filing summary returns as well as detailed invoice-level details for the months of July and August.

Difficulties faced by businesses included the tax payment not getting reflected in their wallets at the time of filing returns, absence of certain software utilities and non-responsiveness of the website of the GST Network (GSTN), the IT infrastructure backing the new indirect tax regime.

A ministerial panel led by Bihar deputy chief minister Sushil Kumar Modi has given Infosys Ltd, which set up the IT network for GSTN, time till October-end to fix 80% of the technical problems.

Compared to July, businesses found filing GST returns and paying taxes smoother in August as GSTN focused on addressing the issue of “unanticipated user conditions”. This refers to certain combinations of factors that result in errors in rare cases.

Traders say the IT system has posed grave difficulties for them. “Lack of awareness and education about GST affects compliance of traders in smaller towns. More than 60% of traders do not have computers, which makes compliance a challenge for them,” said Confederation of All India Traders (CAIT) secretary general Praveen Khandelwal.

Self-policing system

Taxpayers’ difficulty in adjusting to GST, however, cannot entirely be blamed on technical glitches.

That is because GST, a technology-driven self-policing system, has raised the compliance bar. The new tax system has ushered in a paradigm change in taxation, wherein the only interface between the authorities and the taxpayer is technology.

“Collection and matching of invoice-level data was first started by Gujarat and Karnataka followed by seven others—Andhra Pradesh, Telangana, Kerala, Tamil Nadu, Uttar Pradesh, Chandigarh and Jammu and Kashmir. Now this exercise is being extended to the whole country under GST,” said Prakash Kumar, chief executive officer of GSTN.

Source : http://www.livemint.com/Politics/O5U4s67gDJbXHPUYdSfYaK/GST-shakes-up-Indian-economy-by-setting-the-compliance-bar-h.html

Non-life insurance sector looks for lower GST rates

The non-life insurance industry is looking for centralised registration facility and comparatively lower rates for a smooth implementation of GST, a senior official from the sector said.

Goods and Services Tax (GST), which seeks to turn India into a single market for the first time, is likely to be implemented by the Government during the next fiscal.

“In the industry, we are looking for centralised registration facility and lower rates for the implementation of GST,” SBI General Insurance SVP and CFO Rikhil K Shah told PTI.

The lower rate demand is mainly for making the insurance premium affordable, he added.

“The issue of GST implementation will be discussed during the General Insurance Council’s meeting on February 17 in Mumbai,” said the Council’s Secretary General, R Chandrasekaran.

“The idea is to take a stock of the GST update for the industry and its preparedness for implementation of GST,” he added.

According to Chandrasekaran, the meeting will also discuss the industry’s preparedness for Ind-AS (Indian accounting standards), to be implemented from April 1, 2018.

Apart from the Chief Financial Officers of various non-life insurance companies, the meeting will be attended by some consultants who will be making some presentation on the Ind AS, he said.

Talking about SBI General’s preparedness for GST implementation, Shah said the company, in accordance with the Irdai notification, had set up a committee to carry out the smooth implementation of the new accounting system.

“We have appointed an external consultant to manage the implementation project and effective transition from the current accounting practice. We had initiated the process of implementation well in advance to align resources and meet the deadline,” he said.

“To ensure that challenges and problems which will be faced in the conversion exercise are detected at an early point of time, we will be having an appropriate strategy, planning and execution of the project,” he added.

As Ind AS focuses more on the concepts of substance over form and fair valuation, the balance sheet numbers of the insurers would reflect a fairer picture.

According to Shah, “on our preliminary assessment, we feel that fair valuation of investments will increase the balance sheet size.”

Money Control, 16 February 2017

To accelerate economy, much-touted GST reform should be passed

In the economic corridors, taxation policies have always held an indomitable position. As the entire functioning of the Government is contingent upon these policies, they will empire us as long as the system of governance subsists. In India, the indirect tax structure simulates an obscuring experience in terms of multiplicity of taxes, tax rates, tax periods, threshold limits and endlessly diverse and exponentially multiplying provisions. While the much awaited GST is conceivably expected to bring in a uniform experience as well as simplicity to the existing herculean system, Budget 2017 was expected to be distinctly significant as 2017 is the transitional year.

The Finance Minister presented the Budget 2017 with a focus on themes of transform, energise and clean India. Broad announcement with respect to the GST was made to reiterate July 1 as the date for the landmark reform. While we expected the roadmap to be disclosed, the announcement with respect to the draft codes would have provided greater certainty to industry. Indirect tax rates have not been significantly changed as the transition to the GST appears to be on schedule.

Service tax exemptions have been provided to services provided by Army, Naval and Air Force group insurance funds with retrospective effect from 2004, services provided by IIMs by way of two year full time residential programs and in respect of viability gap funding payable to the selected airline operator. However, exemption has been withdrawn on import of technology as the Research and Development Cess Act, 1986 has been repealed.

The customs duty, as expected, has been reduced on various goods such as LNG, catalyst and resin, solar tempered glass, and articles thereof, micro ATMs and parts of these devices and miniaturized POS card reader, which form part of procurement for the domestic sector. In line with the expectations arising from the introduction of demonetisation process, promotion of cashless transactions, import and domestic manufacturing of related devices have received a significant boost in form of tax exemptions.

To promote the Make in India initiative, customs duty on certain raw materials, inputs and capital goods has been considerably reduced, while import of nickel has been exempted from basic customs duty. The reduction in duty has also been made on certain chemicals and petrochemicals materials. The renewable energy sector will see a boost from the reduction and exemption on CVD, BCD and SAD on multiple commodities.

In addition, changes in Customs and Excise/CVD have been proposed to address the problem of inverted duty structure in certain sectors. Duty on imports pertaining to certain food processing and electronics products has been increased to protect the domestic manufacturing industry. As with customs duty benefits, digital payment sector has received a boost in terms of excise duty benefits proposed for equipment. Further, excise duty benefits are extended to cast components of wind operated electricity generator, membrane sheet to manufacture reverse osmosis membrane for filters and solar tempered glass and parts thereof.

Interestingly, pending applications before the Authority for Advance Ruling (Central Excise, Customs and Service Tax) would now be transferred to that constituted under the Income Tax Act. While the budget is focused on stimulating growth, promoting digital economy and improving tax administration, it could have been a much better version. The need of the hour is to accelerate the economy and promote consumption, while paving the way for the much-touting reform of GST.


First Post, 14 February 2017

Govt may recalibrate its budgetary tax collection estimate mid-way after GST entry

Perhaps in a first, the government may have to recalibrate its budgetary tax collection estimate half-way after the goods and services tax (GST) comes into effect from July.

In Budget 2017-18, Finance Minister Arun Jaitley used the traditional tool of setting a modest growth to the expected revenue collection in the current fiscal for indirect tax projections of the next financial year.

By that yardstick, 2017-18 will be a different year compared with the past. Mid-way, GST will kick in by subsuming all central indirect taxes such as central excise and service taxes as also state levies like VAT into one.

GST collections so made are then to be split equally between the Centre and states. But since there are no reliable estimates of combined VAT collections of states, Jaitley could not project the Centre’s revenue from GST in 2017-18.

“Right now, we have not put them under the head of GST because till the law is passed (by Parliament and state legislatures), we cannot account under GST. ` “So, we have taken the normal estimate of excise and service tax collection. We have taken a very modest growth rate of about 9 per cent for indirect tax. Because of GST, we may have to wait and watch. So, we are being conservative in estimate,” Revenue Secretary Hasmukh Adhia told PTI here.

The GST revenue collections can be arrived at once the all-powerful GST Council, headed by Jaitley, fixes tax rate for every goods and service.

Also, Parliament has to pass two supporting GST legislations and each of the state has to approve one legislation.

Adhia said the heads of excise and service tax in the Budget estimates can be removed once GST comes in.

“We can change it (budgetary heads). We can remove the head of excise and service tax and bring in GST. That can be done administratively even from July 1. The government can reappropriate between two Budget heads,” he said.

Indirect taxes have three major components — Customs, central excise and service tax. While projections of Customs revenue will continue to be same through 2017-18, those for excise and service tax may have to be reworked as the same is to be subsumed under GST.

For 2017-18, Jaitley has projected excise collections to rise by 5 per cent to Rs 4.06 lakh crore over revised estimate of Rs 3.87 lakh crore for the current year. This growth is primarily due to 6.3 per cent growth in collections from basic excise duty on petrol and diesel.

Service tax receipts are projected to rise by 11 per cent to Rs 2.75 lakh crore. Customs revenue is projected to climb 13 per cent to Rs 2.4 lakh crore.

In total, the government estimates to collect nearly Rs 9.27 lakh crore from indirect taxes next fiscal, up 9 per cent over 2016-17.

The Economic Times, 12 February 2017

Land, real estate should be brought under GST: Sisodia

Land and real estate should be brought within the Goods and Services Tax (GST) regime and consumer durables should be taxed at the lowest slab to make the new indirect tax regime consumer friendly, Delhi Deputy Chief Minister Manish Sisodia said today.

The Minister assured industry chambers that he would take up the aforesaid issues in the forthcoming GST Council meeting as keeping land and real estate being outside purview of GST and that higher taxation slab for consumer durables would kill its basic purpose, a PHD Chamber release said.

Addressing a seminar on GST, Sisodia said dual control of GST also defeated its intended objectives and sought more intense consultations on the issue in future course of GST Council, arguing that the objective of the GST should be consumer and traders oriented and it should not entirely aim at raising taxation with higher rates.

“I fought tooth and nail for inclusion of land and real estate within the ambit of GST but somehow there couldn’t be an absolute consensus on the issue at number of GST Council Meetings of all the States Finance Ministers because of obvious reasons,” Sisodia said.

“Consumer durables such as TV, Mobiles, electric appliances and host of similar such articles should not be taxed luxuriously. That is our view and we will continue to articulate them whenever necessary in the interest of Aam Aadmi though the GST tax rates have yet to be finalized,” he said.

CBEC Chairman Najib Shah asked the industry not to keep seeking exemptions under the GST regime as most of such exemptions would go away after it is put in place.

The Chairman also clarified that the anti-profiteering clause in GST Law is there as an enabler and industry should not read too much on it, promising that post GST host of indirect taxes would subsume in it making the new law user friendly, the statement said.

The Economic Times, 9 February 2017

GST likely to make air conditioner costlier by 7 per Cent

An industry expert said that in July-September due to growing raw material prices and the possible implementation of the GST, the prices of air conditioners will go up.

“Raw material prices like copper, aluminium and steel have been steadily rising for the last few quarters. The proposed GST bracket for us would be 28 per cent, which is disappointing for the industry. All these could lead to a price hike by up to 5-7 per cent in July-September,” B Thiagarajan, Joint Managing Director, Blue Star Ltd. said.

Talking about sales growth projections in the next financial year starting from April, he said that the company should clock a 15-20 per cent rise in revenue from the room air conditioners segment in 2017-18.

“The air conditioner industry grew by 20 per cent in October-December despite the demonetisation impact, so there is no reason to believe that growth in the summer season and thereafter would not be in double digits,” he said at the launch of new inverter split air conditioner range.

Thiagarajan also said that the company will invest about Rs 3.5 billion over the next three years on two new manufacturing units in Jammu and Kashmir and Andhra Pradesh.

India TV News, 9 February 2017

CAIT to train 5,000 traders as ‘Master Trainers’ for GST

The Confederation of All India Traders (CAIT) today said it will prepare 5,000 trade leaders across the Country as ‘Master Trainers’, who will be responsible to empower and educate the trading community about Goods and Services Tax (GST).

CAIT in association with Tally Solutions (TSPL) has initiated a national drive to help traders to understand the impact of GST on their business and to educate them about the procedural compliance under the new taxation system, CAIT National President B C Bhartia said in a release issued here.

“The proposed GST is a technology-based taxation system, which will change the business landscape in the country. We have conducted over 20 conferences in various states and 20 workshops are in the pipeline. We intend to make 5,000 trade leaders as ‘Master Trainer’ on GST all over the country in next two months. We will rope in Tax Practitioners, Chartered Accountants and Tax Consultants in this drive,” he added.

Money Control, 8 February 2017

GST to create Rs 36,000 crore software market in MSME segment

With the GST expected to be rolled out from September this year, there is a scramble among the software providers to have a bigger pie of the MSME segment whose invoicing and tax compliance IT requirements are estimated to create a Rs 36000-crore market.

Currently, only 90 lakh dealers out of the about 1.5 crore are using software for invoicing and filing returns and the rest are yet to adopt technology for this purpose, according to Mohit Bhambani, chief executive officer of city-based KDK Softwares. However, Bhambani said, there are about 1.6 crore MSMEs who are still not in the tax net. “GST will bring most of the more than 3 crore dealers into the tax fold and create a software market size of Rs 36,000 crore. Under the new regime companies would be required to show the tax they have paid while purchasing raw materials to claim deduction from their tax obligation,” said Bhambani.

The tax compliance, accounting and invoicing software market is mostly concentrated in Bengaluru and Jaipur, accounting for 90% of the companies who are now building on capabilities to offer GST solutions. While the southern city is home to companies like Cleartax, Winman Software, and Tally Solutions, Jaipur also has the likes of KDK Softwares, CompuTax and Saginfotech leading the pack.

 “Jaipur is the accounting capital of India producing 37% of the chartered accountants. On the other hand, Bengaluru is the Silicon Valley of India, the IT hub of the country. Development of tax filing and invoicing software requires both skills in equal measure, pretty much summing up why these two cities enjoy a leading edge,” added Bhambani.
As most of the MSME sector will come under the GST regime, the size of client base is expected to grow manifold requiring additional workforce to meet the increasing demand.

Times of India, 7 February 2017