Impact of GST on the Spare Part Industry
The Indian economy has seen quite a few ups & downs in the last few months. With crucial issues like demonetization and the implementation of Goods & Services Tax (GST), many industries & enterprises have seen various changes in their businesses. While some have shown a positive response to the GST, other enterprises have reacted negatively towards the new ‘One tax’ implementation. With a significant growth of revenues in the Indian auto part sector from INR 2340 billion in 2014-2015 (an increase in 11% revenue), the spare parts’ industry is catching up with the fast-paced market & is contributing a major chunk to the economy. Easyspare Part, a well-recognized brand in the B2B industry catering to the buying & selling of industrial supplies elaborates on the effect of GST on their business and how the concept is contributing to the growth of their company.
GST—A Positive Note For the Manufacturers
GST has resulted in the simplification of the process especially for the manufacturers who buy & sell products across the country. The overall impact of GST is quite positive for all the stakeholders including the customers as it has simplified the entire process. After the implementation of GST, we do not have to obtain road permits for different states in India like before. That compliance has almost vanished.
Easy Tax Compliance
The tax compliance has become very simple after the GST. In simpler terms, Earlier if the manufacturer had to purchase a product, he had to pay 12.5% VAT and sell that product on a 2% CST. The rest 10.5% was credited in the VAT account with the government officials which could be claimed later on. This process takes almost 3-4 years’ time because of the assessment wherein all the entries & forms were cross-checked. After all the compliances, the government makes the final decision, whether it has to be refunded or not. Considering the pace of the refund process in India, one has to shell out at least 10-15% of the amount as a bribe. (E.g. If you have to take a refund of 2 lacs, you have to give 30,000 as a bribe). Thanks to GST, now, all that has stopped! After the GST implementation, if we buy the product at 18%, we sell it at 18%. This is a very positive effect especially for Easyspare Parts. Since, we purchase material at the local tax i.e. 12.5% and sell across the country. 99% of our sales come from outside Delhi. That way we’ve been positively affected by this move. Our success ratio has increased almost 30-35% within the last 2 months because of GST. In the month of August, we are expecting the highest sales ever. I believe that each & every industry has had a positive effect from GST in terms of getting credit of their expenses. For example if my company has an electricity bill of INR 50,000, we are giving 18% GST to the government. The government is giving benefit of that 18% tax with the provision of adjusting that amount from the GST account. In a way, it is a cashback to me.
Demonetization & GST
There is another positive impact on the economy in the sphere of demonetization. For instance, if the company is not displaying their electricity bills in the accounts, it will not get the credit for that. For instance Recently, I had purchased 4 mobile phones for my company in a market price of INR 12,900 per phone. Earlier, I did not get any benefit from these payments but now I get 28% amount of GST, which has been credited to my GST account. This means that I gain an extra benefit of INR 12,000 which will further get adjusted in my GST account. This is a positive step for every company. Even if you buy furniture for the company, 28% tax credit is gained which was not possible earlier.
Effect on the Prices
If we look at an overall impact of GST on the country, it is positive because the prices are lowering down. Earlier, if a company was manufacturing televisions, he was paying a 12.5% excise duty to the government in addition to 25% VAT. Currently, everybody is a non-registered dealer in excise, only 1.5% of the dealers in India have an excise number. 99.9% are working on non-excise number. The excise cost paid by the manufacturer doesn’t get any benefit so the 12.5% excise was a waste but now there is a feasibility to adjust this 12.5% in GST. Hence the price has come down or is almost the same.
Generally, people have the perception that after GST, prices will increase however it has remained the same because the 12.5% excise duty is exempted. However if I buy raw material then the entire 18% of my raw material is exempted. E.g. My client Hindustan Lever is engaged in producing food items & the excise is not chargeable on them. Similarly, Kellogg’s have also decreased their prices to 8% after GST.
Easy Return Process
The process of GST returns is very simple. I’ve not seen such an easy process. Earlier, we had to submit 4 returns for excise, 4 returns for VAT, 4 returns for TDS & 1 return for income tax, and had to visit 3 different government departments to submit the documents. It was required to employ 3 specialized persons for sales excise. Right now, we are filing 12 returns only, 1 return in a month. There is only 1 department!
In India, all the leading manufactures/distributors benefit from GST and is improving their bottom lines but not many are open about it. By the end of this financial year, the bottom line of every company will be increased. Their total net profit margin will be higher than the previous one. GST is beneficial to everyone however the segment that is at loss is the people who are involved in unauthorized work. Overall, GST has a positive effect on the economy. Manufacturers who have a transparent approach are finding it effective.
The article is written by Ankit Mittal
Ankit Mittal has a diverse experience of over 13 years in the Financial, Marketing & Industrial sector. At Mittal Portfolios , he looks after multiple service verticals & is responsible for the execution of strategies in a time efficient manner. He holds a graduate degree in commerce & has a vast experience in capital markets. Before starting Easy Spare Part, he was involved in Automated arbitrage software marketing, where they had marketing rights for North India. Here he developed relations in capital markets & got a first-hand expertise in managing funds.
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