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NEGATIVE IMPACT ON MANUFACTURER

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Companies have set up units with significant investment outlays based on incentives offered by States under their respective investment promotion policies. These incentives are usually in the form of tariff incentives (lower tax rates, refund /deferment of taxes etc.) and non-tariff incentives (economical land lease terms, lower electricity duty etc.).
Further, the Model GST Law does not clarify the fate of current incentives. Companies which have based their financial projections around these fiscal incentives may have to reassess their projections.

Also impact on working capital may be significant for the manufacturing sector. Under the current regime, stock transfers are not subject to tax. However, under the GST regime, stock transfers are deemed to be supplies and are subject to GST. Though GST paid at this stage would be available as credit, realization of this GST would only occur when the final supply is concluded. This would likely result in cash flow blockages and therefore companies would have to rethink their supply chain management strategies to minimize this impact on their cash flows.

Also impact on VAT, under the present indirect tax regime free supply of goods are not subject to VAT. The Model GST Law stipulates that specific transactions without consideration would also be treated as supplies. Accordingly, free samples may be subject to GST, leading to increase in overall costs.

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