IT channel partners have mixed opinions on the recently introduced Goods and Services Tax (GST), termed as the country’s biggest indirect tax reform. While the partners agreed that GST is a biggest driver towards formalization and transparency, many raised concerns around the preparedness of the market, existing inventory, and variations in tax slabs for IT products.
“It is too early to talk about the on-ground benefits of GST. While we have got clarity on many issues, there are few points which are still not clear; the most prominent is the process for claims on the existing inventories. Moreover, many small partners are still grappling with process changes required to become GST compliant,” highlighted Sugreev Singh Ranawat, President, Rajasthan Computer Traders Association (RCTA).
“Many of the small partners were using in-house developed or local solutions for taxation and compliance. They are facing challenges to make their systems GST compliant. Moreover, customers are holding their purchases as many are expecting prices to decline with GST. Our sales have reduced drastically from Rs 25 lakh – 30 lakh per day to just Rs 1 lakh per day. It is still not clear whether the prices will decrease or not; we expect picture to be clear by August,” added SR Nautiyal, MD, Spark Technologies, New Delhi.
In addition, liquidation of existing inventory is one of the major concerns for many partners. Many of them highlighted that with GST coming into force, they are facing losses on their existing inventories. “We understand that traders are entitled for 60 percent refund on the 9 percent CGST against the proof of excise duty. Even if we take a refund on CGST and deduct 5 percent VAT against 9 percent SGST, we have a deficit of 7.6 percent if we sell at the same price (pre-GST prices). In the current circumstances plagued by tough competition, it’s difficult to increase prices. Moreover, with customers’ expectations on price decline, partners are bound to take losses on existing stocks,” explained Sudhir Arora, Director, Computer Gallery, Indore.
Ranawat of RCTA added that tracking of the existing inventory will be troublesome as partners need to separately track the sales of aging inventory to claim refund. “While the inventory must not be more than a year old, partners can only claim refund as they sell the aging products. For small partners, it will be a tedious task. Moreover, filing returns every month will also be a challenge.”
Further, partners agreed that while GST subsumes all the taxes including excise duty, CST, VAT and octroi into a single tax, it is unable to maintain uniformity across the IT products in its current form. “While most of the IT products come under the 18 percent slab, few have been put in the higher 28 percent slab. For instance, single function printers attract 18 percent GST against multi function printers (MFDs), which have been put into 28 percent slab and accounts for majority of the market share. Similarly, networking cables, connectors and many networking products have been placed in 28 percent slab against the rest in 18 percent slab. This variation will not only create confusion among the customers and partners, but also increase the prices,” explained Arora of Computer Gallery.
However, many of the partners tried to clear the air by offering clarifications countering the raised issues. “Besides benefits on unfettered movement of material across the country, channel partners will clearly benefit from input tax credit for office equipment purchase, office rent, bank charges etc, thus lowering their fixed and variable costs. Moreover, input tax credit will subsume the cascading effects of taxes and will bring the prices down, which is quite evident in the automobile segment where companies are transferring benefits to customers on the savings through tax credits,” stated Saket Kapur, General Secretary, PCAIT.
He added that the government has already clarified on most of the issues and also giving us time till September to file GST returns. “In fact, customers will now prefer to do business with GST-compliant partners only, in order to claim refunds on GST. Hence moving toward GST is a win-win situation for all of us.”
On the existing inventory front, Nilesh Kuwadia, President, ISODA, clarified that most of the partners have liquefied their inventories in June with backend discounts from vendors. “Moreover many of the vendors also provided excise duty proofs to enable partners claim excise refunds, which will lower their exposure to just 1 percent. We must realize that GST is targeted toward ease of doing business and making processes transparent. We must provide at least a month for things to settle down before jumping to conclusion. ”
In fact, many of the vendors are also supporting their partners become GST compliant. “Our teams are working with business partners to ensure 100 percent GST compliance and supported them one-on-one to ensure a smooth transition to the new tax regime. We heartily welcome any concern from our partners and are committed to offer solutions,” shared Mukul Mathur, VP, Global Business Partners and System Integrators, IBM India and South Asia.
Kapur of PCAIT concluded that GST takes care of most of the pain points in businesses including cascading effects of taxes, double taxation, inter-branch transfers and logistics. “There are few issues for which we have already given a representation to the government. We have asked the IT minister to maintain uniformity across all the IT products. We hope the government would soon iron out the remaining few issues.”
Author Amit Singh