Goods and Service tax (GST) is one step towards major reforms in Indirect Tax structure in the country. It has a deep impact on all business houses and their strategies. As GST is a destination based tax structure, it will also change the revenue pattern of state and central governments. By amending the constitution of India through 122nd amendment all state governments have been empowered to tax services and Central government has been empowered to charge tax on goods. A regulatory body called GST Council, having representation from all states and Central government, shall address the issues related with GST on the national level and play a role in recommending body to Central government for final decision.
With the introduction of GST, the method of calculation of indirect tax on goods and services will change and indirect tax shall be calculated on same amount or price. It will nullify the cascading effect of taxes. So there will be no payment of VAT on Excise duty. With this change of method, the cost of products and services will reduce. Under GST, Input Tax Credit (ITC) will be available on all type of input supplies i.e within and intra states; it will further reduce the cost of the products and services. The introduction of single returns formats for State and Central governments with same calendar period and having all transactions online through the internet will ease out the business process. GST will also ensure free movement of goods throughout the country by eliminating check posts and octroi barriers. It will reduce the travel time of the vehicles and goods will be delivered fast. By one estimate, it will reduce the logistic cost by 20% approximately. With the free movement of goods and uniform tax structure across the country, branch offices or dumps of the companies may also be eliminated or will be reduced. It will reduce the marketing overheads further. In the total process, the consumer will be benefited as the cost of the goods and services will go down. By having one to one correlation with all transactions, leakage of revenue will be plucked and it will strengthen the economy.
The total process of GST further ensures the greater transparency in the whole system. All stakeholders will be on the line for each and every transaction right from registration and linked with Adharcard, Banks Account Number along with MICR Code, IFSC Code, PAN number, Import Export Code (IEC), Companies Identification Number (CIN) etc etc. Further, the details of all professionals dealing with departments on behalf of their clients will also be made available and will be linked with their client details. All dealers having any type of transaction will also be online through their GSTIN, TDS, and TCS numbers and transactions will be linked accordingly.
We know that indirect tax i.e GST is one of the element of total cost of a product or service and transparency in indirect tax only does not solve the purpose. We must have transparency in total supply chain management. Like in GST, we also need transparency and accountability in all steps prior to GST. We need transparency and accountability right from raw material produce to the consumption of final product at the consumer end.
GST has the direct link with the cost of the goods and services and will be calculated at Cost plus profit amount of a manufacturer. GST process talks about the overall benefit to the consumer. But it will be a challenge for the governments to ensure that GST benefit must reach to the consumers. Under GST though the government has introduced various checks to verify the facts but still without having transparency under the whole system it will not be possible. GST council through online transactions can ensure one to one correlation of the transactions but will not be confident about the methodology of the prices calculated for goods and services. GST is going to impact the total cost of goods and services through various mechanisms and the consumer will be benefited, but without having transparency in costing mechanism, how one can ensure that benefits of the GST have been passed on to the consumer.
To ensure real term benefit to the consumer, it is necessary to have formal cost accounting mechanism in all type of business formats and the government should introduce costing records and audit in the way GST AND demonetization has been done in this country. Cost Accounting mechanism gives you the breakup of each and every element of cost and also tells about its methodology. Every economic activity has its social cost. So all business houses must have their costing mechanism in a transparent manner and it must be available to the government for verification through Cost Audit. Valuation of stock or inventory is one of the grey areas in any business format and with the help of Costing records inventory valuation will be more transparent. Through formal costing mechanism, it will be easier to work out the costing of a product or services and the impact of GST on it.
In GST Model LAW 2016, the government has put a big responsibility on the shoulders of CMAs and has asked them to verify various transactions of business houses through audit, inspection, verification and certification. CMAs are also entitled to appear in Tribunal in the matters related with the interpretation of law. It will help the government to ensure proper compliance of GST provisions and plucking of un- plucked areas. But unless we have Cost accounting in all transactions of value addition or chain supply, the ultimate aim of the benefit of cost reduction to the consumer will not be possible. Indirect taxation or GST is one of the elements of total cost. We need other elements of cost like raw material utilisation, labour deployment in industry, Utility cost, Administrative and marketing overheads etc. to be addressed in the same fashion by introducing costing reforms in all economic activities. Maintenance of Cost records and audit thereof is the first step in this direction and it may derive better result than GST outcomes.
In India, Cost records and Audit is applicable to selective industries through Companies Act 2013 but it is not sufficient to ensure real term benefits of GST to the consumer. It has to be introduced in all business formats in totality. In GST greater transparency is worked out, similarly, there is a need to introduce transparency in costing process. Our resources are limited and need optimum utilisation. Through Costing we will understand the utilisation of resources in the better way. Time of gross level accounting has gone and now it’s a time of micro accounting. Formal Costing in all business formats is the only solution.
India has basic infrastructure, research work and knowledge needed for costing in industry. To implement GST in true spirit and to make the success of ‘’make in India’’ government must think to introduce Costing records and Audit in all business formats by amending all related laws. On one side it will help the industry to take the edge over world market and on the other side will generate employment in real terms. In the present scenario, the country needs minimum 50000 Cost Accountants (CMAs) to achieve the goals under GST. Let’s join hand to make India GOLDEN SPARROW again.