Consumer Goods Companies Still Clouded With Uncertainties About GST, CLSA Says

The rollout of Goods and Services Tax (GST) regime has brought consumer goods companies to the brink, said brokerage house CLSA citing questionable preparedness in the backdrop of evolving rules.

Industry participants have indicated GST to bring about a tectonic change in accounts, businesses and processes, CLSA wrote in a research note. The cut-over might be a rough one as firms are yet to conduct test runs and the anti-profiteering rules indicating a price hike following rising costs remain unclear, it added.

An increase in the compliance costs (I.T. and accounting) is expected, with repercussions which are largely uncalled for. Destocking is likely to result in temporary financial losses, CLSA said. 

Credit mechanism, financial operations will be largely impacted in case of glitches in the supply chain, CLSA noted. It also expected working capital costs to see a sharp rise as all taxes will have to be paid at the time of goods leaving the factory.

Inadequate tests have been conducted on the GST Network, which may result in issues involving taking inputs. Considerable amount of data remains to be uploaded, adding to the plight.

I.T. companies may face issues in their coding platforms with the recent reforms. While larger organisations may be well equipped to handle them, smaller businesses will remain at a disadvantage.

Another financial implication may arise from backward areas receiving just 58 percent of the exempted amount for investment, the report said. The government is yet to provide clarity on what it plans to do with the remaining 42 percent of funds.

The merit lies in closing stocks of raw materials, finished goods, stores and spares being verified by auditors, said consultants.