GST will have significant impact on working capital requirement Apr 15, 2010 Goods and service Tax
A leading FMCG company has 23 warehouses across the country. It may not need more than five once the Goods and Services Tax, or GST, kicks in. It has begun consolidating its warehouses and has built a big one in a key North Indian state. GST is still some time away —the Centre and the states are yet to decide on the rates, a draft law is not ready, the constitutional amendment is yet to happen — but companies are already trying to figure out its impact, and getting ready for it. Companies have formed internal teams to understand how GST will affect their bottom line, working capital, supply chain, manufacturing, longterm contracts, and new investments. A few companies have also engaged tax consultants to help them make a transition to the new system. “Everything they have been doing in the pre-GST environment could change,” said Rajeev Dimri, head of indirect taxes with BMR Advisors. Companies would have to figure out where to manufacture, where to procure from, and how to distribute and price their goods. “GST is increasingly being seen as a business issue and not just a tax issue. In many board meetings, the preparedness for GST is being discussed and reviewed,” said Pratik Jain, executive director, KPMG India. Indian companies have been living with multiplicity of taxes, though the effective tax rate has come down from 40 per cent to 20 per cent. Taxes often dictate a company’s decision where to manufacture and how to distribute its goods. Companies set up manufacturing units in states which offer tax benefits. To have a more tax-efficient distribution, they set up warehouses across states. They don’t have to pay central sales tax (CST) if they do a stock transfer to warehouses. Many taxes, including CST, will be subsumed into GST. GST will also replace a bevy of other levies like excise, sales tax, value-added tax, entertainment tax and luxury tax....
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