Channel welcomes GST

During the Budget announcement, Finance Minister Pranab Mukherjee proposed
ushering in of Goods and Services Tax (GST) by April 2010. Unfortunately, lack
of information on the topic has got people making guesses on the nature of the
system that will be proposed.

What is GST?

It is essentially a value-added tax that is applicable on goods and
services. Once this comes into place all the other taxes will be done away with
such as central tax, state-level sales tax and octroi.

Not only will the initiative break the tax barrier that currently exists
between the different states in the country, it will also make the tax procedure
transparent since it will be collected at the point of sales and not at multiple
points. In the new order the channel partner will be responsible for collecting
the tax from end-consumers and handing over the GST to the government.

There are two types of GST-unified and dual. In the first model, central excise
duty, service tax and sales tax are merged together and collected as one single
tax. In dual GST, two kinds of taxes are applied on the taxable value of a
product or service-central goods and services tax (CGST) and state goods and
services tax (SGST).

While no concrete plans have been announced on the nature of GST that will be
applicable in India, in all probability it will be the dual system to help both
central and state governments control their fiscal powers. Giving the legal
perspective on which situation would make better sense for India, Pavan Duggal,
Advocate, Supreme Court of India said, “Given the federal nature of the Indian
Republic and given a clear demarcation of respective legislative fields for the
center and the states in the form of Union, State and Concurrent Lists, it would
be legally correct for India to have a dual GST regime.”

Weighing the odds

Currently a channel partner pays an average of over 20 percent tax. Once the
GST comes into play this amount will reduce by a significant margin. However,
GST will be most beneficial for the software dealers as the current confusion
about double taxation will disappear.

“The introduction of GST will be good for the channel. It will plug in any
loopholes that are there with VAT and other taxes,” shared Arvind Modi of Jaipur-based
Bits&Bytes. But he also reflected that the system would encourage dealers to
make bulk purchases from metros. “As of now we buy our goods locally from the
sub-disti. But with GST cross border purchases would be encouraged. Dealers in
Delhi would give better prices so the channel in the smaller cities would prefer
to buy from the metros,” added Modi.

When asked what he thought about the ushering in of GST Modi replied, “It is
not a big issue, we will follow it if it is implemented. It all depends on
whether the government is geared to implement it or not.” He added that as of
now it was too early to understand the modalities.

On the other hand, PN Prasad of Puducherry-based Microplus Computers, who is
also the President of Confed-ITA felt that GST would herald good tidings for the
channel. “Currently, I have to check within Puducherry for goods that I want to
purchase. Now the limit of the state will be removed. With GST we can take our
trade interstate and increase it. I can get competitive with big orders, so this
system will be good for those players who want to increase their reach,”
commented Prasad.

Agreeing with Prasad, Sanjay Langer of AGM Sales, Jammu saw the reform as an
opportunity for the channel as interstate purchasing would become easier. In
fact he thinks that the large national distributors might consider closing down
their warehouses in the region. Listing the negatives in the same breath he
said, “Four to five distis might end up offering the same productsand there will
also be the time factor in transporting the goods. But pros and cons are part
and parcel of a business.”

According to Chetan Shah of Mumbai-based Xpress Computers, the GST system is
a welcome and long awaited tax reform. “Currently, tax payers undergo a lot of
hardships and costs to compute the different taxes payable such as CTS, VAT,
Octroi, customs duty, excise etc. The impact should surely be positive on the
channel,” he said.

Citing that prices may go up in some cases Shah added, “GST will be rebatable
at source paid, so it might not cause an increase in prices. In fact net prices
to buyers might be lower than before because of tax credit.”

Readying for change

The proposed date for GST to come into effect is April 2010. Though there
are many unanswered questions on whether it will finally be implemented and if
so what will be the nature and rate. There is a lot of back-end work that needs
to go into fixing the rate of GST, which is something the central and state
governments have to sit down and finalize.

Talking about whether GST should be introduced or not, Modi shared, “If it's
in the interest of the country and helps then yes it should be done. The
government should not think short term. Ultimately what is good will continue.
Raj IT Forum is willing to organize online seminars on GST if we get experts to
talk on the topic.”

But whether the government will be able to meet its deadline is questionable.
“Different states are not cooperating with each other, and the central and state
governments cannot see eye to eye. I am sure the target will be missed and that
eventually it will come into being by 2011. No doubt once it does come into
being it will be great, a very positive step for the country. There will be less
corruption, smoother system and value for customers,” expressed Alok Gupta of
Delhi-based Softmart Solutions.

Shah, who felt that India actually needed a unified model stated, “I believe
that a unified GST model is ideal for India as we are a large country. A dual
model would mean complications for the government as well as assesses.” On how
the channel can prepare for the new tax Shah said, “Firstly they need to
understand the new reforms carefully; have a detailed meeting with their tax
consultants and have doubts clarified, if any; adapt their processes and educate
staff accordingly and finally, enforce the new procedure with due diligence and
care.”

V Krishnan, Secretary, Progressive Channels Association of IT (PCAIT) was
also of the view that a unified GST would be suitable for India. “It will be
better for all including the central and state administrations to have a unified
GST system that allows sharing of the revenue between the center and the states.
Associations like PCAIT and others should lobby for this,” he proposed.