Impact of GST on Manufacturing Sector means

GST impact on Manufacturing Sector


This post explains about Impact of GST on Manufacturing Sector

MST (manufacturing sector tax)

Impact of GST on Manufacturing Sector


The manufacturing sector of any country is a major economic driver for the developing economies across the globe. However, unlike others, India’s manufacturing industry is still scrambling with the others and the performance is been lackluster.

In respite of having favourable demographic and geographic position as an advantage, it has not been able to capitalize. A complex tax structure, inadequate infrastructure, and bureaucracy diminishing its capability to perform well on a global scale engulf the manufacturing sector in India. As per the sources, the manufacturing industry in India has been close to stagnant for the last two decades with only a 16% share of GDP.

However, the manufacturing sector might be revived under the focused efforts of government and by an implementation of GST regime that could even lead to experience a paradigm shift from an agrarian economy to manufacture and service based economy.

For India, becoming a manufacturing hub will need various strategic reformations to simplify the existing system in the country. One of the much-publicized proposed reform “make in India” scheme initiative taken by the government is aligning with the implementation of the GST.

Impact on manufacturing sector:

Reduced Cost of Production

There are many other advantages of new GST administration and one of them is reduced cost of production that is expected to be spurred by tax reduction. Another advantage of GST administration is non-accessibility of union or central tax credit over state taxes and vice versa can be removed. This is going to be done by giving permission to unrestricted tax credit. Even if there is 2% lower tax rate in GST it will increase the profitability of the Manufacturer by 10%.

Hassle free Supply of Goods

The checkpoints at the state border, which are tangled with material scrutiny and location, based compliance lead to unproductive production, logistic time and transit hours aligning with regulatory obstruction reduce the efficiency of Indian manufacturers compared to their international counterparts. The new GST model will unify the Indian market and assist the smooth flow of goods within the country.

Restructuring of Supply Chain Management.

Three prospects of GST- an additional 1% tax on supply of commodities, the supply of goods and services to oneself and input tax credit on inter-state sale may impel the necessity for supply chain restricting.

According to the constitution 100th Amendment Act, 2015 related the differentiation between “supply to oneself” and “supply from one person to another” and the additional tax should only be imposed in cases where is a consideration i.e., supply to self should not be covered within its ambit.

Availability of input tax credit on state supply of goods and services may lead to warehouse re-engineering that can remove an extra level of warehousing in the supply chain, hence leading to greater cost benefit.

Area based Exemptions

The rolling out of GST will send out positive signals to the world and the country is going to be seen as a unified market. This will make territory based exemptions seen currently will lost their distinct importance.

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