Does GST mean more price burden on end products?

GST is believed to be the game changer in the long run, making systems more accountable and governance more open & transparent. With the GST era already here, the initial implications and hiccups are slowly beginning to be felt, but as vendors say, they are short lived and would not last long. But would not there be an impact on the pricing of goods?  -    

The implementation of Goods and Services Tax (GST) is going to provide a big business opportunity for Indian IT companies. It comes at a time when the sector is going through some tough time with concerns regarding a slowdown in the global economy. 

Industry experts believe that the opportunity that the GST rollout will give rise to will be somewhat similar to the Y2K problem in 2000 and will be worth USD 1 billion business opportunity. Another report says that the GST will present an Rs 6,000 crore opportunity for IT companies in the next couple of years, and later become an annuity business. Cloud-based service providers are also expected to gain from the huge storage requirements from both the state and the Centre.

Impact of GST on IT products...

Sanjeev Arora, Chief Executive – Digital Services, WeP Solutions puts it that the unveiling of GST law is anticipated to have profound effect on different sectors. The impact can be -
•    monetary impact by way of higher or lower incidence of tax and consequential impact on demand 
•    increased procedural compliance and 
•    transformative impact.
 

“Much of the manufacturing and trading segments have to contend with either higher or lower incidence of tax. Consequent impact on demand is anticipated in the short to medium term. On the positive side, the layer within the segment that was reluctant or hesitant to embrace Information Technology can no longer continue with intransigence. Many of the small scales units and medium scale retail units fall within this category. IT products that cater to this segment can look forward to happier times,” says Sanjeev.
 

He further adds, “GST law in its present shape has entrapped the services sector into a maze of procedural compliances. In the pre-GST era, firms operating in the services landscape could be registered centrally and operate seamlessly in India. This is set to change quite drastically.  Firms are required to be registered in multiple States. So firms in this segment require IT products that help them to meet their increased procedural compliance requirements.

The third impact is quite transformative in certain sectors like for example a manufacturing company would no longer be required to have warehouses in different states. Rather, it can have a nodal warehouse either near its factory or its primary market and cater to the country wide requirement. One can look forward to paradigm shift in the way firms operate their logistics. We need IT products that ease the pain of such radical changes,” points out Sanjeev.
 

Sunil Sharma, senior director, sales, Sophos India & SAARC on his part recounts that since GST has been implemented, there has not been any increase or decrease in demand or supply of IT security solutions at Sophos. “However, its implementation has facilitated simpler operation of business,” he says. 

In terms of sale of IT products like Printers/Scanners/Barcode Scanners/Laptop/Desktop/Hard Drives/SSD/External Hard drives, these are some of the products which are moving at a pace thus creating shortage but are again increasing the demand. “Desktop and various components like CPU, hard drive, RAM etc. are flying off the shelf since early July. This is predominantly because of either businessmen setting up GST PC or upgrading their old computers to suit the needs of the GST software,” says Rajesh Goenka, Vice President, Sales and Marketing, Rashi Peripherals.

However Tejas Goenka, Executive Director, Tally Solutions puts it that it is still early to draw a trend on how GST has impacted the movement of goods. “July was obviously better for businesses across the board compared to June but that has to be attributed to the slowdown in June because of the impending change. There was also destocking reported from many corners before GST came into effect and therefore the stark difference between pre and post GST time.”


But whatever be the case, the overall market and industry seen gaining from GST will be reflected shortly. The overall industry has seen a positive implication and verticals like FMCG, Pharma & Automobile are believed to be seeing an immediate upward movement which is very good for both the industry and economy.
 

“With the onset of GST, Marg has gained a fivefold increase in the sales of its software product because of its simplicity and availability in different geographic,” says Sudhir Singh, MD - Marg Compusoft. 

 
The post GST implementation era...
GST is expected to fill the loopholes in the current system and boost the Indian economy. This is being done by unifying the indirect taxes for all states throughout India. Tax compliance is bound to show a significant improvement while the size of the informal economy will reduce.
 

Opines Pinaki Samiron Dhara, Vice President – Savera Technology, “The tax rate under GST are set at 0%, 5%, 12%, 18% and 28% for various goods and services, and almost 50% of goods & services comes under 18% tax rate. As GST is a new terminology for India every organization must adapt this by timely submission of their purchase, sales expenses, and returning the file timely as per government deadline.”

 Sunil says that their go to market approach remains the same as they continue to focus on delivering next generation IT security solutions to the mid-market enterprises and the channel that serves them. "Sophos will continue to prioritise its investment in technology and in consolidating its leadership position as the only security vendor with a balanced IT security portfolio spanning both end-user and network security. As the Group is committed to IT security, it believes it has an advantage over competitors who often seek to address disparate and unrelated areas of technology,” says Sunil. 
 

“At ClearTax, our motto has always been to help Indian businesses become GST-ready,” says Archit Gupta, Founder & CEO, ClearTax. “Since GST is a new tax policy, the first step was to spread awareness about the new taxes and their implications. Our experts have been conducting webinars and video tutorials since the GST Model Law was made public in order to help businesses understand the finer points of the new tax regime. We have live training on our software so that those who are new to an online mode of return filing and invoicing can also use the software with ease. ClearTax offers round-the-clock software support to all businesses, CAs and tax professionals in their chosen language so that they face no problems in transitioning to a digital economy.” 

ClearTax has two products that are being used by businesses to become GST-compliant. The first is the ClearTax GST Software which is a ready-to-use software for all GST requirements. ClearTax GST can help businesses with invoicing and billing, return filing, reconciliation and more. ClearTax GST Software is a cloud-based software that can be integrated with any existing accounting software. So, a user does not need to download the software - all they have to do is create an account and start invoicing and filing returns. The GST software works on the principle of real-time invoice matching or reconciliation so that any discrepancies in data between the buyer and supplier can be flagged before the returns are filed. There are also offline utilities available to users like uploading invoices via excel, software training by experts, and a GST Billbook which can be used to generate GST-compliant bills. The GST Billbook is available free of cost for all businesses that can be easily used by all tax professionals without the need for any manual exchange of data. 

Apart from this, ClearTax has also created ClearTax GST Suvidha Kendras which function as help centers for anyone who has a GST-related query. The experts at these Suvidha Kendras help customers understand ClearTax software as well as explain the new laws to them. “We are currently offering our products - the GST BillBook and the GST Software - for free for all businesses so that they can use these tools and become GST-complaint easily,” states Archit.

EasemyGST is another venture of an IT company called Ginesys that is an ERP package for the retail customers. “When the GST was about to come in, we realized that the retail industry is facing a lot of challenges. So we developed our own ERP software for the retail industry. Even though we have come up with our own software, there are many other software which are available in the market. And so we tried to differentiate our product. In GST the main concern is invoice mismatching, and is an important compliance area of any GST software, where my supplier and purchaser invoices need to be matched together. We have found it from the research that there are 32 reasons through which 95% of invoice mismatching can be done. For any small entrepreneur, it would be very cumbersome if he has to check each and every invoice where this problem is happening. So we tried to solve this problem through our solution,” says Jyoti Prakash Gupta, Managing Director – Resurgent India.

Every business needs to adapt to the dynamic socio-political environment it operates in. Filing GST is similar to filing ITR’s on periodic basis. While, there are teething troubles, businesses would get used to it in due course of time. SMEs especially need to adapt to the changed environment with a positive mindset. Any change is bound to throw up opportunities and the ones that are enterprising enough to capture them would flourish.
 

“GST can be made successful if entrepreneurs/businesses will be made comfortable with the concept and its best application. We have achieved this nicely. This approach and methodologies been appreciated by the entrepreneurs, trade associations as well as government officials,” opines Sudhir. 

Marg ERP market approach is informative and educative. Most important aspect for businesses to adopt GST is proper information and implementation according to their business. With more than 500 GST facilitation centers and around 5000 GST help desks across the nation, Marg has been a major help for many entrepreneurs in understanding the ease of GST adoption and help them opt the right solution while choosing an inventory and accounting software.

 “We believe GST is a journey for all businesses in the country and we are committed to walking this journey with them,” Tejas.  “Before GST came in, we spent considerable amount of time and effort in educating businesses across the board on the new law and how they will get impacted by it. This was backed up with forums like our blog, a mobile app on GST and more than 5000 events to spread awareness. With GST getting implemented, we launched our GST ready software Tally.ERP 9 Release 6 which makes it very simple for businesses to record and maintain accurate GST ready invoices. Now with the return filing season coming in, we are enhancing our product to deliver accurate returns at the click of a button. To enable smooth adoption of the product we are holding Tally camps and Kendras across the country where businesses can move to Tally easily. We are also working with the ICAI to enable CAs on technology so that their clients can benefit as well. As the laws and associated technologies evolve, we will support businesses so that they can easily adapt.”

Rashi Peripherals has also been in the forefront in launching various GST awareness and need campaigns. “We have conducted various GST remote training programs, where we updated our partners to be ready with minimum specifications of components, which would enable them to make the PC GST ready. As a part of these campaigns, we did a 50 city road show covering over 1000 retailers and partners with a signage saying “GST PC AVAILABLE HERE”. This enabled SMBs and SMEs to have more comfort in going for the upgrade of GST PC. At the same time, Rashi Peripherals unleashed a campaign, where we educated various users on the basic minimum requirements of GST PC. This communication became a catalyst and users from SMBs and SMEs rushed to their suppliers to upgrade their PCs to suit GST needs,” explains Rajesh.

For Masters India, the idea for getting into GSP services is to start specializing as a company in the GST space, while it also saw a good opportunity to basically reach out to as many companies as possible. “There is this compliance requirement every business has to consider before migrating to the GST regime. We as a GSP would help companies and make their transition to GST easy and convenient,” says Nishank Goyal, CEO - Masters India.
 

The pricing policy under the GST regime...

Market intelligence says that there is going to be an increase in the pricing of the products and solutions post GST. But that claim is however refuted by many, saying that pricing of any product has got no relation with the levy of GST. 

Says Rajesh, “This is not true. In fact the prices have marginally moderated. There could be some spike due to the gap between demand and supply at the channel level. Further, vendors along with distributors are running many GST promotional offers, which are making the offerings more aggressive.”

“As a matter of fact it has been the opposite at Sophos,” says Sunil. “With the implementation of GST we have been able to reduce prices up to 5%, the benefit of which has been passed on to the customer. Sophos’ commitment to support its customers and partners over the long-term confirms our commitment to deliver industry-leading, trusted, enterprise grade IT security solution.”

Sudhir too agrees that there is NO massive change in the prices of the products and whatever exists about increased prices is a myth. “Yes, we do agree services have been felt become expensive however it’s temporary implication as in longer terms that will add up to lots of comfort and ease to entire service chain. The biggest is that there will be a single tax without the cascading effect of multiple taxes so we can say that only value addition is taxed at each point.” 
As per Pinaki, not all products and services price has increased, but the products has been classified under categories and the GST is applicable as per product classification whether its IT, Aviation, Transportation, FMCG. “In short basic things price has been decreased with low taxation structure and lifestyle category under High taxation structure.” 

Tejas cites that there have been different kinds of changes. Services have generally seen an increase and so have products whose rates have increased from what they were in the previous regime. “However, there have been quite a few goods for which the new GST rates are lower than what they were earlier and therefore effective price for the end consumer has come down. Also, the fact that the ‘tax on tax’ has been done away with has also resulted in decrease in prices as seen prominently in the automobile sector.  However, with potential of savings that businesses can make because of increased ability to claim input credit on various expenses is still not being realised by them and will require few more cycles. Once this starts happening, we anticipate prices to come down.”
It is also true that many businesses have had to shell out money in order to achieve compliance. GST requires every business to have access to the internet, and file returns online. The paper-and-en economy is undergoing a transformation, and it comes at a cost. However, this is a one-time investment and not a recurring cost. Also, those businesses which already have legacy software and ERPs in place will find that they do not need to buy new software for GST compliance. 

Nevertheless, we are still in the early days to make definitive judgment on the pricing of the products. As Sanjeev says, that the downstream of value chain was not exposed to value added taxation till now and the downstream in due course of time will gain confidence on the availability of input tax credit and hence will be more willing to pass on the benefit of reduced incidence of tax. “Another reason for this impression gaining ground is the peculiar nature of IT products. Some IT products display features of entertainment industry, household consumer durables etc and have been subject to higher rate of GST. Dual use products are faced with clarity or rather lack of it with regard to rates of taxes and this is another reason for this impression,” he states.

And so…

The rollout of the Goods & Service Tax (GST) is a paradigm shift from the earlier tax system. The right approach would be to understand the concept of GST and its implication on a business because knowledge would help create the much needed faith in the policy and reform, eventually leading to positive returns. 


“This is the first time such an initiative has been taken and implemented in such a short span of time. It’s a historic step, and we would like to congratulate the government of India for having achieved this milestone. The implementation of GST will mean simplified business for all. It will avoid the cascading effect of double taxation, increase transparency and boost the overall growth of the economy. It is believed that prices will reduce in due course of time and the resultant benefit will be passed on to the consumers accordingly,” sums up Yogesh B. Dutta, COO – C P Plus.