The Goods and Services Tax (GST) is both a challenge and an opportunity in effectively managing the working capital. There are many media houses that will help you to navigate its complexities and extract the maximum benefits from the new tax regime offers in managing working capital. They would focus on the key areas of business but in the short term.
Suresh Nair, partner, Indirect Tax, EY India has also said, “GST is the game-changing reform for the Indian economy. For businesses, GST has opened up many different avenues for efficiencies, reducing cascading of taxes across the supply chain“.
Impact of the Difference in Tax Rates
- In earlier tax system, firms were required to pay 15 percent of service tax versus new tax regime-GST, where they have to pay 18 percent now
- The additional tax elements would also contribute to increased cash flow requirements of companionship
Impact on Supply Chain
- Nationwide tax structure implementation is expected to bring abilities in the supply chain
- Minimum inventories are allowed in the new tax regime
- Working capital requirements are also increased because of taxing stock transfer
- It will also the free flow of goods across states
Impact on the Timeline of Tax Payment
- Before, there were different dates of cash outflow for various taxes raise- excise duty, VAT and service tax
- Additional float of the amounts enjoyed by the organization that they have paid in the earlier tax system
- Now in new tax regime-GST, the consolidated tax will have to be paid at one time
- Firms are required to manage the cash outflow to support increased the flow at one go
Impact Due to Refund of Export Claims
- Due to problems in the system, there has been a delay in payments export refund claims for exporters
- Because of this issue, in the initial months of GST implementation, exporting companies feel the strain on working capital
Impact on Receivables and Payables
Firms would be required to modify their procedure-to-pay processes to utilize the input credit, as the credit eligibility is restricted to make payments within 180 days.
