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Last Updated : Sep 01, 2016 11:49 AM IST | Source:

GST – A Key Enabler to Solve B2B Commerce

Goods & Services Tax (GST) is all set to be rolled out and will be effective from April 2017 as it has now been passed by both the houses and is pending for few customary administrative passages.

Goods & Services Tax (GST) is all set to be rolled out and will be effective from April 2017 as it has now been passed by both the houses and is pending for few customary administrative passages. It is being touted as one of the most vital reforms for the Indian economy post the economic liberalization of 90s.

As and when implemented, GST will be a comprehensive tax regime applicable across all Indian states on the sale, manufacture and consumption of goods and services, essentially converting the country into a unified market which has been one of the key concerns of business to business commerce.

As per the present applicable tax laws, when goods are sold they are subject to excise tax (applicable on certain goods), state specific VAT (intra-state sale) and central state tax at the buyer state (inter-state sale). As per the current regulations the VAT is adjustable such that a trader or distributor pays VAT on the value add component.

However, Central State Tax (CST) is not adjustable and once paid, it cannot be adjusted and this being the main reason why the inter-state transactions bear a tax disadvantage compared to intra-state transactions across many commodities in B2B commerce.

A cursory look at the retail price of any product manufactured in India reveals that the total tax component is roughly 25-30% of the cost of the product. Even after resolving the issue of taxation, the harassment that it inflicts on the principal is even higher than the tax component. What nails the story is the unpredictability in clearance of goods in transit that adds to the cost of the product at the retail end. 

In many cases, organizations also tend to become aggressive in levying taxes so as not get caught in the midst of ambiguity and interpretation of the taxation rule. So in short, the consumer bears the brunt of complicated taxation policy, inefficient clearance process for goods in transit, harassment and what not.

The problem is not related only to Indian manufactured goods but also to the imported goods. Land locked states or states without cargo handling ports face wrath of these inefficiencies when transporting raw materials, intermediate products or finished goods across multiple state boundaries.

Once the GST becomes applicable it will not only simplify the indirect taxation system but will also have extremely positive effects on India’s growth. GST will replace some sixteen taxes in all like, Central VAT (CENVAT), Central Sales Tax (CST), Central Excise Duty, Additional Excise Duty, Special Additional Duty of customs (SAD) to name a few.

This is going to be one single tax which will be levied on the product or service which is being sold. Thus simplifying the complicated tax structure and also reducing the compliance costs. GST will replace CST and thus companies won’t have to pay the additional tax which adds up to the cost of the products in their hand. The GST also simplifies as now they will not have to worry about the state from which they are buying.


The introduction of GST will also simplify the logistics & supply chain decisions as currently the B2B commerce industries are governed by individual state tax boundaries and the regulations. Invariably, the decisions for sourcing and warehousing end in economics based on tax implications rather than convenience, distance or other strategic considerations.

After GST applicability instead of maintaining several warehouses across tax-geographies, companies may now plan to have fewer larger warehouses located strategically for decreasing the operating costs and also to simplify the logistics. With the introduction of GST, issues in final product pricing of a manufacturer that involves factor of uncertainty emerging out of sourcing issues, timelines, pricing of raw material/consumables, blocked working capital cost etc. will be greatly taken care of.

Keeping all these potential benefits in account, a study by the National Council of Applied Economic Research says that with implementation of GST, India's economy will grow by 0.9% to 1.7% and virtually every media report cites expert opinion to potentially add up to 2% to India’s GDP.

As they say, “better late than never” India is slowly but certainly creating infrastructure for ease of doing business and B2B commerce is poised to tap the true potential of the country in coming years. A simple and flat tax structure in the 4th largest economy (PPP Basis) was long due and the timing augurs well for the country.

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First Published on Sep 1, 2016 11:49 am
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