On-ground check: Is India Inc ready for GST?

MARKET NEWS - With barely a few hours to go before goods and services (GST) tax bill becomes a reality, channel / on-ground checks by two leading research houses – Bank of America Merrill Lynch (BofA-ML) and Edelweiss – suggest that India Inc, at least the small and medium enterprises, are not fully prepared for the transition.

Both, however, agree that beyond the short-term pain, there are gains in store over the long run. In the new regime, major Central and State taxes will get subsumed into GST, which will reduce the multiplicity of taxes.

“Our interactions with dealers, manufacturers and GST facilitators suggest that the SME segment is not only struggling for preparedness, but also staring at rising manpower and compliance costs which could disrupt their business and impact cash flows,” says a June 27 report by Edelweiss titled GST: Get, Set, Go.

In the run-up towards last leg of GST implementation, Edelweiss' interactions with companies and trade channels suggested four key points: a) there was significant slowdown in past two weeks of June across several sectors; b) inventory liquidation was wider-than-expected and could last beyond Q1FY18; c) most participants suggested normalisation only from Q3FY18; and d) FMCG, auto ancillaries after-market sales, pharmaceuticals, plywood and tiles sectors were most impacted, while auto OEMs and cement seem to be least impacted.

However, the brokerage argues that the GST will usher in a much simplified tax structure in the country, bring in cost efficiencies and result in market share shift from unorganised to organised players.