Companies want their vendors to cut price by 10% due to GST benefits
MUMBAI: Even as the government pushes ahead with the GST framework, some of the biggest companies, especially in manufacturing sector, have started demanding that their vendors pass on the cost benefits resulting from GST to them.
According to the people in the know, some of the biggest companies and conglomerates are seeking around 10% cut in the asking price by vendors. Industry trackers say that most of the automobile companies along with a handful of petroleum companies, beginning, February, have started communicating to their vendors about this.
The companies have already calculated the exact jump in the vendors' margins and want that they pass it on to them.
"Many big companies have already calculated the exact impact GST would have on their operations and have even reached out to their vendors. These companies are demanding that the vendors must reduce their price by anywhere between 2-10% as GST would benefit them and then pass it to the company," said Srikant Jilla, managing partner, SKP Business Consulting.
The anti-profiteering clause inserted by the revised model GST law is also being used to ensure that the GST benefit/credits is being passed on by the companies/vendors to the customers, say industry trackers. The issue however is, some of these companies may not pass this to its customers, say industry trackers. While the GST framework cautions companies to maximise profits through "anti-profiteering" clause, the details of the same are sketchy.
"As per the current regulations no company can profit from lower rate of GST as opposed to the current indirect taxes and will be required to pass on the benefits to the customers. While anti-profiteering provision is present in GST law, there is no clarity around which authority will implement this law and what would be the rules and regulation including the rate of penalty," said Sachin Menon, national head, indirect tax, KPMG India.
Experts point out that as it stands today there is no clarity on the penalties levied by the government in case if a company is not passing on the benefits to the end customers. Also, there is ambiguity around which of the tax authorities would collect these penalties.
Insiders point out that some of the companies are also set to benefit not just due to the taxation regime but also due to the change in their strategy. "Like many larger companies would consolidate their warehousing and hence would see their margins go up. But can government claim that this is anti-profiteering?" asks an industry tracker. There is a view that such non taxation related increase in margins may not be passed on to the customer.
"However, large companies are demanding that their vendors reduce their costs in such a situation. Some vendors may choose to move away from such a company, but most are set to give in to these demands," added the industry expert.
Also the GST rules don't really distinguish between cost benefits from pure taxation and jump in margins due to change on company strategy, like change in logistics planning.
According to the people in the know, some of the biggest companies and conglomerates are seeking around 10% cut in the asking price by vendors. Industry trackers say that most of the automobile companies along with a handful of petroleum companies, beginning, February, have started communicating to their vendors about this.
The companies have already calculated the exact jump in the vendors' margins and want that they pass it on to them.
"Many big companies have already calculated the exact impact GST would have on their operations and have even reached out to their vendors. These companies are demanding that the vendors must reduce their price by anywhere between 2-10% as GST would benefit them and then pass it to the company," said Srikant Jilla, managing partner, SKP Business Consulting.
The anti-profiteering clause inserted by the revised model GST law is also being used to ensure that the GST benefit/credits is being passed on by the companies/vendors to the customers, say industry trackers. The issue however is, some of these companies may not pass this to its customers, say industry trackers. While the GST framework cautions companies to maximise profits through "anti-profiteering" clause, the details of the same are sketchy.
"As per the current regulations no company can profit from lower rate of GST as opposed to the current indirect taxes and will be required to pass on the benefits to the customers. While anti-profiteering provision is present in GST law, there is no clarity around which authority will implement this law and what would be the rules and regulation including the rate of penalty," said Sachin Menon, national head, indirect tax, KPMG India.
Experts point out that as it stands today there is no clarity on the penalties levied by the government in case if a company is not passing on the benefits to the end customers. Also, there is ambiguity around which of the tax authorities would collect these penalties.
Insiders point out that some of the companies are also set to benefit not just due to the taxation regime but also due to the change in their strategy. "Like many larger companies would consolidate their warehousing and hence would see their margins go up. But can government claim that this is anti-profiteering?" asks an industry tracker. There is a view that such non taxation related increase in margins may not be passed on to the customer.
"However, large companies are demanding that their vendors reduce their costs in such a situation. Some vendors may choose to move away from such a company, but most are set to give in to these demands," added the industry expert.
Also the GST rules don't really distinguish between cost benefits from pure taxation and jump in margins due to change on company strategy, like change in logistics planning.
