Introduction
In the intricate world of business, profitability is the ultimate goal. Maximizing profits doesn’t just involve increasing sales; it also hinges on how you manage expenses, including taxes like Goods and Services Tax (GST). In this comprehensive article, we explore the profound implications of GST on your business’s purchases and sales, providing practical examples that shed light on why businesses should carefully consider their GST strategies.
The Quest for Long-Term Business Success
Every entrepreneur and company aspires to achieve business longevity. To ensure that a business thrives over time, it must be sustainable and consistently profitable. One of the central tenets of business longevity is maintaining a sale price that consistently exceeds the purchase price. This approach ensures not only immediate profits but also long-term sustainability.
The Allure of Lower GST Bills
In the realm of business, securing a good deal is often celebrated as a success. However, the quest for lower GST bills can lead to intricate consequences. Businesses frequently negotiate with their suppliers to lower GST bills. While suppliers may agree to these requests, it often comes with a caveat. Although you pay a reduced amount, the resulting invoice is lower, even if the supplier charges you the entire sum. This practice may initially appear attractive, but it can have legal repercussions for the sellers.
Lessons from Practical Scenarios
To illustrate the concepts discussed above, we’ll delve into various practical scenarios with real-life examples.
Scenario 1: Full GST Bill
| Aspect | Details |
| Purchase Price | ₹60 per Meter (Lowest Possible) |
| GST | 1/3rd of the total (1/3rd of 12%) |
| Invoice Value | 20% of the total amount |
| Roll Length | 60 Meters |
| Number of Rolls | 14 |
| GST | 12% |
| Amount Paid in Total | ₹60 * 14 * 60 = ₹50,400 |
| Bill Amount | 20% of ₹50,400 = ₹10,080 |
| Selling Price | ₹62 per Meter |
| Sale Invoice Value | 14 Rolls * ₹62 S.P * 60 Meters = ₹52,080 |
| Net GST Paid | (Sale Price Incl GST – Purchase Price Incl GST) |
| (₹52,080 – ₹10,080) * 12% = ₹5,040 | |
| Profit / Loss | Sale – Purchase – Net GST – Expenses (If Any) |
| ₹52,080 – ₹50,400 – ₹5,040 = -₹3,360 (Loss) |
Scenario 2: Half GST Bill
| Aspect | Details |
| Purchase Price | ₹62 per Meter |
| Roll Length | 60 Meters |
| Number of Rolls | 14 |
| GST | Charged at 6% |
| Selling Price | ₹65 per Meter (including GST) |
| Bill Amount | ₹54.71 * 30 Meters * 14 Rolls + 6% |
| = ₹22,981 + 6% = ₹24,360 | |
| Amount Paid in Total | ₹62 * 60 * 14 = ₹52,080 |
| Selling Price | ₹65 per Meter (Including GST) |
| Sale Invoice Value | 14 Rolls * ₹65 S.P * 60 Meters + 12% |
| = ₹54,600 (GST Included) | |
| Net GST Paid | (₹54,600 – ₹24,360) * 12% = ₹3,388 |
| Profit / Loss | Sale – Purchase – Expenses (If Any) – Net GST |
| ₹54,600 – ₹52,080 – ₹3,388 = -₹868 (Loss) |
Scenario 3: Full GST Bill with Price Increase
| Aspect | Details |
| Purchase Price | ₹65 per Meter (Including 12% GST) |
| Roll Length | 60 Meters |
| Number of Rolls | 14 |
| GST | 12% (100% Bill Amount) |
| Selling Price | ₹68 per Meter (Including GST) |
| Purchase Bill | ₹65 * 14 * 60 + 12% = ₹54,600 |
| Amount Paid in Total | ₹54,600 |
| Selling Price | ₹68 per Meter (Including GST) |
| Sale Invoice Value | 14 Rolls * ₹68 S.P * 60 Meters = ₹57,120 |
| Profit / Loss | Sale – Purchase – Expenses (If Any) – Net GST |
| ₹57,120 – ₹54,600 – ₹302 = ₹2,218 (Profit) |
Key Takeaways
The scenarios presented above offer crucial insights into how your GST strategy can significantly impact your final profit and losses. While the allure of lower GST bills may seem attractive in the short term, the long-term profitability of a business is better served by adhering to full GST bills.
Understanding Customer Needs
However, it’s essential to consider the varied needs of customers. Not all customers have registered for GST, and some may question the necessity of GST when they’re not eligible for refunds. In such cases, businesses should consider making purchases from non-registered or composite GST dealers when selling to customers without GST numbers.
In conclusion, crafting a sound GST strategy can help businesses not only navigate the complex tax landscape but also ensure their long-term financial health and sustainability. While lower GST bills might seem appealing, businesses should carefully weigh the short-term benefits against the potential long-term losses. Understanding your customers’ GST needs and optimizing your purchasing strategies can also make a significant difference in your overall profitability.
Author Bio
In a manner of critical viewing the strategy (ies) touched upon has something to do with the Invstors/stakeholders in the entity on one hand – whose expectation is maximisation of ‘profits’ (that’s the same as of the REVENUE), and the customers /consumers on the other-minimum pricing for goods or services !
Business acumen is balancing the two; but at the same time, not get into any more problems with the REVENUE, whose sole /whole objective is to augment its coffers, justly/fairly or otherWISE !
In short, the utmost caution /alert called for is to strive and ensure, to the best of knowledge and belief, not to fall between two stools – despite the inevitable risk of uncertainties galore- the ever widening gap between the two stools !?
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