The Goods and Services Tax(GST), which aims to replace indirect taxes with a provincial tax was announced last year amid much fanfare. Hailed as a landmark financial legislation in the history of this country, there is a lot of anticipation of reduced prices for certain commodities for the consumer and greater tax compliance. However, let us look at the GST Impact on traders.
GST Impact on Traders:
No ambiguity concerning nature of the business.
With goods and services being treated as equal under the GST regime, you as a trader won’t have to worry about which category your business falls under, as GST will be levied on both of them.
This eases the earlier problem of treating the two things differently regarding tax levied, and you could focus on running your business well, instead of stressing over this non-issue.
Eligible to avail credit
As a trader, you would now qualify to avail credit of the GST payable on your domestic procurement of goods and services required for operation of the business, unlike the present indirect tax regime.
This allows you to offset some of your operating expenses, thereby increasing the bottom line. This has an added advantage as well; if you choose to pass on this benefit to the consumer in the form of lower prices, it can lead to higher sales, which is extremely beneficial for any business.
The GST Impact on traders dealing in imported goods can be even more significant. If you are a trader for imported goods, your landed cost can be expected to significantly decrease because there are certain import duties that form the bulk of your cost of acquisition, and since this would decrease, it would result in windfall savings for you as a trader, which you can pass off to your customers or improve your margins significantly, or both.
Increase in Working Capital Requirements
This is a potential challenge posed by the Goods and Services Tax, sort of a negative GST Impact. Since the GST rate is expected to be more than the existing tariffs, and this is particularly the case for certain industries, it may lead to a greater requirement for working capital to meet this additional cost.
Furthermore, as a lot of trading businesses rely on inter-state stock transfers hence levying of the GST on stock transfers will probably lead to a greater requirement for additional cash outflow.Your stock turnover ratio will be significant to determine the money, and working capital requirements for transfers without corresponding sales could lead to locking up of cash in the form of tax.
Even the benefit of additional tax credits, as outlined in the previous point can only be leveraged if there is a robust compliance system on the part of the trader. If you are lax in filing your due returns and completing the necessary formalities, then forget about getting those additional credits.
Regardless of the size or complexity of your trading business, it is imperative that you have in place a robust IT system that ensures that you adhere to the new compliance requirements.
Considering the cost of such a system, which may not be feasible for every business, it is important for you as a trader to make a comparative decision, weighing in the cost of laying the IT systems and compliance vis-à-vis the potential business benefits that you can derive from having such a system in place.
Therefore, as is evident, the GST can prove to be a game changer for the Indian economy, and it may make India a better and easier place to do business, as many experts hope, though we will have to wait and watch for that. Till then it is important to understand the GST impact on you as a trader.
As we can see, there are both a positive and a negative GST impact, which can be mitigated if you are prepared. This impact may be difficult to adapt to in the beginning, but then most changes are. It is best that you are prepared beforehand to use the positive GST impact to your advantage and mitigate the negative GST Impact.