February 25, 2023

Excise Collections May Drop Before GST Goes Live

Excise collections in India may see a temporary drop in the lead up to the implementation of the Goods and Services Tax (GST) on July 1, 2017. The GST will replace a complex array of taxes and duties with a single tax, harmonizing the country's fragmented market and reducing compliance costs for businesses.

However, the shift to the new regime is expected to cause a temporary disruption in the market as businesses adjust to the new tax structure. In the short term, this could lead to a drop in excise collections as businesses reduce their inventory levels in preparation for the transition.

According to a recent report by the Economic Times, the Central Board of Excise and Customs (CBEC) has informed the government that the excise collections for the first month of the current fiscal year (April 2017) have been lower than expected, and are likely to remain weak until the GST is implemented.

While the excise collections for April 2017 were reportedly 19% higher than the same period last year, they fell short of the government's target for the month. The CBEC has attributed the underperformance to businesses reducing their inventories ahead of the GST rollout.

The GST is expected to bring significant benefits for businesses in the long run by streamlining the tax system, eliminating cascading taxes, and promoting the ease of doing business. However, the transition to the new regime is likely to be challenging for many businesses, particularly small and medium enterprises (SMEs) that may face difficulties in adapting to the new system.

Businesses will need to make significant changes to their accounting and IT systems to comply with the new tax regime, and may face cash flow issues due to the temporary disruption in the market. The government has announced various measures to ease the transition, including a GST Network to provide IT support, tax credits for input taxes paid on goods and services, and a compensation scheme for any revenue losses to the states due to the switchover.

In conclusion, the shift to the GST is likely to cause a temporary drop in excise collections, but is expected to bring significant long-term benefits for businesses and the economy as a whole. Businesses should prepare for the transition by updating their accounting and IT systems, and taking advantage of the support measures provided by the government.


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