The ground report from Ambattur in Tamil Nadu shows GST is a mixed bag
Most companies in Chennai’s Ambattur Industrial Estate expressed concern over the recent rise in fuel prices and the exclusion of petrol and diesel from GST
The noise of clanging metal and sparking welding machines is a sweet sound for people on Ambattur Industrial Estate on the outskirts of Chennai in Tamil Nadu for it marks a recovery of sorts from the turmoil of the launch of GST in 2017.
The experience of GST — ‘one nation, one tax’ — has proved to be a mixed bag. With the passage of time, looking back, some employers see GST as one of the most positive policy initiatives ever. Others are still hurting over the impact. A third group has mixed feelings.
What is not in doubt is that for industrialists on the estate, spread across 1,450 acres in what is the largest small-scale industrial estate in south Asia, what followed was a complete overhaul of business.
Prior to GST, there were around 2,400 micro, small and medium enterprises (MSMEs) in the area. That number now stands at 1,800 units, a fall of 25 per cent. But far from seeing this reduction as a negative fallout of GST, some industry officials see it on the contrary as a sign of GST’s success.
“A lot of companies shut down. I see this as a plus point for the industry. In the excise duty regime, the same group used to float three-four companies for the same business to remain under the threshold of excise duty (Rs 20 crore). Post-GST, these companies merged into one,” said A N Gireeshan, president of Ambattur Industrial Estate Manufacturers Association.
ALSO READ: Quicker refunds helping exporters in GST regime
What happened in Ambattur was replicated on a larger scale in Tamil Nadu. The number of MSME units came down by 18.45 per cent within a year after the new tax regime came into effect. The majority of the companies on the estate area are component suppliers to the automobile and engineering sectors. “Due to GST, there was no loss of revenue or jobs. But even after five years, it needs fine tuning regarding the rates of several products,” said one of the employers, on condition of anonymity.
With 60 per cent of the companies dependent on the automobile sector, one major issue that MSMEs here face is the payment of input tax credit.
“Input tax credit is collected from MSMEs by the government regardless of the credit period enjoyed by large companies who are our clients. This credit period may sometimes extend up to 75 days, adding a burden on the industry,” said M Balachandran, CEO, Delta Control Systems.
Delta’s clients include car and tractor manufacturers and companies in the water pump and oil pump sector. The automobile sector is kept at a GST bracket of 28 per cent and there is a demand for its reduction.
Balachandran recalls that during the first two years, there was lack of clarity on product classification (various slabs), how to access input tax credit, and other uncertainties over the new tax regime. Most companies had to seek the help of accounting agencies.
“For business to consumer companies, GST came as a big blow initially as it affected their prices and they were treated at par with large companies. In the longer run, billing and maintenance of books remained simple,” said Balachandran.
The frequent change in rules was also a hassle. “One tax eventually ended up as three taxes — SGST, CGST and IGST. We have to report to two different authorities with SGST under the state government and the other two under the Centre so the purpose of ‘one tax’ is not served from certain angles. The frequent changes in the rules is also highly disturbing,” said Raghavan Sridharan of Spico Printing Inks.
Most companies in the region expressed concern over the recent rise in fuel prices and the exclusion of petrol and diesel from GST.
“Fuel prices are pinching us. In addition to this, the current rise in raw material prices in steel, copper, aluminium and nickel by 50-60 per cent is affecting our profitability,” said Gireeshan.
The launch of the Electronic Way (e-way) Bill that tracks goods in transit has simplified the earlier complex process for MSMEs.
“During the initial days, there were hiccups in the GST regime due to confusion regarding rates that led to losses for some companies. However, the tax regime and the e-way bill made life simpler for companies like us in the paper industry,” said Rajeesh Kumar of Siddhi Vinayak Enterprises, which is part of the paper industry. The other positive aspect of the tax is that for a large industrial estate like Ambattur, GST removed the burden of dealing with multiple departments such as sales tax and excise.