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What is the Impact of GST in the Manufacturing Sector?

Ashish M. Shaji

| Updated: May 16, 2017 | Category: GST

GST impact on manufacturing sector

Here, we will analyze what will be the GST impact on the manufacturing sector but before that let’s have a basic idea about GST.

What is GST?

The Goods and Services Tax or GST is an indirect taxation system that has been implemented in the country. The main objective behind rolling out GST is to bring all kinds of taxes together into a single taxation system. There were a lot of taxes and many of them differed from state to state. It is important to have a standardized taxation system that is common across the length and breadth of the country. The Constitution (One Hundred and First Amendment) Act 2016[1] introduced Goods and Service Tax.

Before trying to understand the anticipated GST impact on the manufacturing sector, it is important to understand what indirect taxes are. These taxes are levied on supply services and as compared to the existing regime; indirect taxes are levied on the sale of goods and services.

GST Impact on Manufacturing Sector

The Indian economy has always received a boost through its manufacturing sector. Not only India, but the same holds true for other nations. Although the performance of India in this sector has not been too encouraging, the manufacturing sector has still managed to hold its own. Our country enjoys excellent geographic and demographic factors, but we have not been able to make the most of these factors.

Inadequate infrastructure, complicated tax structure, and bureaucracy have had a negative impact on the performance of the country in the global arena. India has a lot of untapped potential waiting to be released.

The government has a clear perception of manufacturing units being the focal point of monetary improvement expected in the country. Today, the government is taking proactive steps to bring about an improvement in this sector. The need of the hour is to take steps and become a manufacturing hub.

Continuing with this line of thought, the government also came up with the “Made in India” concept that stresses the need for manufacturing goods in the country. This will reduce our reliance on imports. Not only for international players but domestic entrepreneurs are also expected to gain a lot of opportunities in the field of manufacturing and finance with this initiative.

In order to make India a manufacturing hub, a lot of major decisions need to be made. These decisions must be in line with manufacturing in the country. GST execution is one of the major steps being taken by the government under Made in India initiative. A transformation move is expected with the implementation of GST and things will move from multi-layered complicated taxation system to an indirect unified taxation system. This step is also likely to bring about a positive change in the manufacturing sector, bringing cooperative synergy in the country.

As a modern tax reformation move, GST will also bring about a lot of development and will open the doors of opportunities for many companies in India. There will be a major improvement in areas like realignment of bottlenecks, business roads, production time and cost, compliance, inventory network, logistics and a lot more with a change in the structure of indirect taxation.

Reduced Production Cost & Increased Profitability

There are many other advantages of new GST administration and one of them is a reduced cost product that is expected to be spurred by tax reduction. Another advantage of the GST administration is the non-accessibility of union or central tax credit over state taxes and vice versa can be removed. This is going to be done by giving permission to the unrestricted tax credit. Even if there is a 2% lower tax rate in GST, it will increase the profitability of the manufacturer by 10%.

Easy Way of Goods Supply

Not only general production but logistical time is adversely affected by cumbersome state border checkpoints where the material being transported is examined and almost 60 percent of truck travel time is taken by this procedure. The time wasted along with unnecessary administrative hindrances has a negative impact on the proficiency of Indian manufacturers against their global counterparts. The GST is expected to remove these problems to a considerable extent by binding the Indian market together and helping in the smooth transportation of goods within the country. Although it is too immediate to do away with external checkpoints, the transportation hurdles can be reduced by decreasing compliance scrutiny.

Restructuring of Supply Chain

There are three major parts of GST, the products and services supply to oneself, 1 percent tax on merchandise supply and input tax credit. These three parts can promote the need for store network rebuilding.

Warehouse rebuilding may gain impetus with input tax credit accessibility on the inter-state offer of services and merchandise, which can help in evacuating warehousing additionally needed for the production network. This way, a lot of money can also be saved.

The escalation in Compliance Requirement

With the implementation of the GST administration, there may be an increase in compliance requirements including various types of GST Returns.

Area-based Exemptions

The rolling out of GST will send positive signals to the world, and the country is going to be seen as a unified market. This will make territory based exemptions seen currently will be lost their distinct importance.


The role of GST in India’s manufacturing growth story is one to be looked forward to. Do you wish to register for GST? Or are you looking for a GST Implementation advisory? After this brief description of the GST impact on the manufacturing sector would you like to know about the GST’s impact on your industry under GST? Please feel free to contact Enterslice, India’s leading online legal and tax advisory firm.

Read our article: ITC restrictions for availing credit in accordance with Rule 36(4) of the CGST Rules

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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