Decoding GST for the Imaging Industry

In many ways 1st July 2017 will etch its way in India’s history as a monumental change and reform in India’s taxation regime. Many call it ‘THE’ biggest move after India’s independence while others haven’t welcomed it with open arms. Whatever you may call it, an opportunity or a challenge, it is clear that the introduction of the Goods and Services Tax (GST) by the Government is one of the biggest moves in India’s existence. In this article Bhavya Desai decodes GST, its opportunities, impact and the implications on the imaging industry.

So if you have been listening to this word GST, which seems to be dominating the business circles in every conversation and have been wondering, how is this going to affect you? Then this article will give you a quick 101 on the same.

What is GST?

GST stands for Goods and Services Tax (GST) which is a comprehensive indirect tax levied on manufactures, sales and consumption of goods as well as services at a National level. Ideally it replaces all indirect taxes levied on goods and services by the Indian Central and State governments.

Basically it is a unified tax structure across India which eliminates differential duty structure and taxation system across different states in India.

How does this matter and affect the consumer?

So if you are wondering, how does this matter to me? Then you need to think again because the introduction of GST will have massive positive impact on the pricing structure of products, introducing a unified pricing policy to product categories across India.

For example, a camera purchased in Maharashtra earlier would be priced lesser or more (depending on the state) elsewhere. So if a camera was before VAT was costing Rs. 100 (excluding tax) in Maharashtra, then it’s eventual MRP would be Rs. 113.50 to a consumer. The same camera in Tamil Nadu would cost the consumer Rs. 114.50 since it levied a VAT of 14.5%.

Another simple example is of the automotive industry. Have you ever wondered that a car of same make and year bought by your friend/family in a different state was far cheaper than what you paid for? In simple words this was due to the introduction of number of layered taxes levied by the Govt on the showroom price of the car. Hence a luxury car in Delhi would cost at least 7-8% cheaper than in Mumbai since there were number of additional taxes that were levied on products entering Mumbai in the past.

So the biggest change that one will see with the implementation of the GST as a consumer is the unified taxation system on products across India. Which means now if you buy a camera, car, or any other product across the country, it will have the same prices across the states. So depending on the state you are, the % increase or decrease in prices will depend on what the % of taxes were earlier. 

But one good news as a consumer that you might find is that there isn’t been much of a change in the pricing of the products in the imaging industry despite GST being implemented. As Nikon India’s MD, Kazuo Ninomiya clarifies, “We welcome the new structure of the GST regime as it has brought the new era in the indirect taxation landscape of modern India, paving the way for a simplified tax structure for goods and services. With GST already in place, we are helping in smooth transition for retailers and distributors, who we have such long-standing relationships with. As of now, we are analysing the effect of current tax structure; though we have not made any price changes in our product range despite the tax changes.”

How are the GST categories classified?

Incase you are wondering how do the thousands of products across different categories in the Imaging and other industries get classified under GST? Well, it’s simpler than you think. The Govt. has broadly classified GST under four categories in terms of taxation levied:

GST Taxation brackets:

  • 6%

  • 12%

  • 18%, and

  • 28%

Each product category and products are defined under a Chapter of an HSN Code. Most products in the imaging industry are classified under the taxation bracket of 18% or 28% currently. 

Cameras are classified under chapter 90 of the HSN code. Chapter 90 of the HSN code contains goods like optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus. Under chapter 90, cameras are classified under HSN Code 9006 which attract 28% GST. HSN code 9006 pertains too photographic (other than cinematographic) cameras; photographic flashlight apparatus and flashbulbs other than discharge lamps. 

Further, cinematographic cameras and projectors, whether or not incorporating sound recording or reproducing apparatus are also classified under chapter 90 of the HSN code attracting 28% GST rate. Hence, digital cameras and analogue cameras attract a GST rate of 28% in India.

Camera lenses are also classified under chapter 90 of the HSN code as lenses, prisms, mirrors and other optical elements, of any material, mounted, being parts of or fittings for instruments or apparatus, other than such elements of glass not optically worked. Camera lenses conforming to the above classification are taxed at 18% GST.

Professional photographic lights and accessories are also classified under 28% GST bracket, which when compared to the sum of previous indirect taxes is not that much of a change from the previous taxes. 

Combined with the benefits that the Govt. has provided along with the minimal changes in the taxes are critical reasons why the manufacturers haven’t increased the prices of their products currently. 

What are the benefits of GST for the industry?

With an unprecedented move like this, there has to be a major benefit, both to the consumers as well as the sellers right? So as ambiguous as this may sound, if my understanding is correct then benefit in this case is more to the sellers and the govt, and I say this with all positivity by way of being make able to make products more available to the consumer, easily and swiftly.

As Epson India’s President and CEO, Kasai Toshiyuki said that GST definitely brings in uniformity across various players, big or small. “We at Epson believe that GST gives a fair chance for both small established players. It’s a platform to compete & leverage the various emerging opportunities that could be triggered from the implementation hence enhance business opportunities. It’s a big welcome move as it sets a long term growth driver. At Epson, we are hopeful that the new system will boost investments and benefit the economy.”

As a consumer the most critical point from a point of purchase is the price-point. But as an industry it is important for the manufactures to be transparent in order to conduct their business.

Sony says that as a company they believe in transparency and in the long run, the new tax regime will benefit customers as it encourages transparency. “Like in every other sector, GST will significantly improve the efficiency of business operations as it will create a much simpler indirect tax regime and reduce our compliance costs in the long term. Our logistics and inventory costs will also be positively impacted. The creation of a unified Indian market will also help us deliver better products and services to our customers. In the long term, it will help the government to collect taxes in a more efficient manner and increase their revenues significantly,” said Hiroyuki Tokuno, DGM Digital Imaging, Sony India.

Anuj Aggarwal, Vice President & CFO, Canon India said, “GST is definitely a paradigm-shifting tax regime and a welcome move from the government. Its implementation has initiated a new beginning in the indirect taxation landscape of modern India, paving the way for a simplified and homogenous tax structure for goods and services across all industries and verticals. I believe that introduction of GST is a positive step and would be beneficial for the industry in the long term. There were initial apprehensions and uncertainties which might have short-term impact. However, we must remember that replacing a complicated system of indirect taxation will make it easier for firms to do business across the country. This will boost investment and, through that, the economy is also set to benefit.”

As Tamron’s India President and CEO, Nitin Goyal puts it, “The Goods & Service Tax or GST is one of the biggest fiscal reforms in India since Independence. All businesses, small or large, will be impacted by this new indirect tax regime. GST will be levied on both goods and services and will subsume and replace the current indirect taxes such as excise, VAT, and service tax.”

So what exactly are the benefits to the Indian economy? I’ve listed some information below that makes things pretty clear.

  • Removing cascading tax effect: Under the current regime, the service tax paid on input services cannot be set off against output VAT. Under GST, the input tax credit can be availed smoothly across the spectrum of goods and services, thus reducing the tax burden on the end user and removing cascading effect.

  • Defined treatment for e-commerce: Many Indian businesses provide goods and services through the internet. Earlier, there were no specific provisions for treatment of the e-commerce sector. Currently, states have variable VAT laws for this sector. For example, online websites (like Flipkart and Amazon) delivering to Uttar Pradesh have to file a VAT declaration and the registration number of the delivery truck. Tax authorities can sometimes seize goods when there is a failure to produce documents.

Again, these e-com brands are treated as facilitators or mediators by states like Kerala, Rajasthan, and West Bengal which do not require them to register for VAT.

All these differential treatments and confusing compliances will be removed under GST. For the first time, GST clearly maps out the provisions applicable to the e-commerce sector and since these will apply all over India, there should be no complication regarding inter-state movement of goods any more.

  • Increased efficiency in logistics: The logistics industry in India had to maintain multiple warehouses across states to avoid the current CST and state entry taxes on inter-state movement. Most of the times, these warehouses were forced to operate below their capacity thus increasing their operating costs.

As GST goes live, these restrictions on inter-state movement of goods will lessen and the logistics sector might start consolidating warehouses across the country

What are the practical challenges that the industry is facing?

Naturally when you are implementing and executing an historic reform in the largest democratic economy in the world, one can’t expect things to be spot on. 

“The task of implementing such a gargantuan tax reform in one of the fastest growing economies is expected to be a tough challenge. In my view the government has done a fairly decent job in the implementation process. The only thing that they probably could have done better is the preparedness and training of the government official to deal with the queries at a local level,” says Pulin Soni, VP, Photoquip India.

Epson India’s President and CEO, Kasai Toshiyuki adds, “There are always challenges when a new process or system is rolled out. The same applies for GST. During the initial stages, there was a lack of information which created a lot of ambiguity and confusion in the market. Different taxes on different products also added to the confusion. If you look at it, the new GST tariff is higher than the previous VAT based rate (CVD+VAT) on MFP and consumables. Hence, our existing procured products material also required a MRP change post the roll out of GST.”

One of the biggest challenge that most businesses (especially distributors/retailers) in the industry were facing were the advances paid towards the stock procured before the 30th June 2017 which already had a paid up VAT tax. But the government put policies in place to help the businesses in such cases, offering 60% on the difference of paid up VAT to GST, albeit you register the stock statement with the GST Department before the 1st July 2017. This brought a much needed respite to the businesses since the increased rate of 28% in most cases was eating into the margins of the manufacturers and others. 

“In case of DSLR lenses since there was no loss on existing inventory which got transferred from VAT regime to GST regime there was not much issue. We appreciate step taken for compensation of CGST increased from 40% to 60% by govt. authorities on the previous stocks,” added Goyal.

And as for manufacturers, “We have not faced much challenge with the products that have been procured already since importers like us are allowed to take the input tax credit of the Countervailing duties (CVDs) on the closing stock in hand below 1 year of age,” added Kazuo Ninomiya, MD, Nikon India. 

Companies like Canon prepared well in advance to adopt GST from the beginning by ensuring clear communication. Through workshops and Electric Direct Mails, they created increased awareness of the new tax. “Once the tax rates were announced, comprehensive trainings and awareness sessions were conducted for employees and partners alike. Communication is key to effectively manage change, and we left no stone unturned to ensure a fair and transparent transition. As an organisation, we are agile to adapt to any situation and be flexible to changes.” 

However while these processes might have been put in place by the government and the companies, it’s implementation and execution is an entirely different story. The company did add that the road to implementation of GST hasn’t been devoid of challenges. “There are challenges on claiming credit of taxes on the products already procured especially imported products. Further due to non-availability of full credit to dealers on their inventory added to complications,” said Aggarwal.

No-information, rumours and more 

While most manufacturers ideally more or less prepared ahead of time for the change, it wasn’t all hunky-dory with the constant changes in the policies until the 11th hour. However, there is a consensus amongst most manufactures and the industry that the policies have become pretty clear after the 1st of July. But whatever said and done the months of June and July 2017 have lead for the industry to loose business. 

And like any other Indian movie, much of it was due to the confusion, speculation and misinformation to/in the trade. Although things were clear from the Govt. and the GST council, due to lot of interpretations from different people at different levels at the execution level, there were confusions. There could’ve been possible ways of providing much easier documentation that a regular trader/normal person can understand which help its rollout easier.

Naturally the bigger traders and listed companies have been following the GST Council for the larger part of their interest. Although some of our sources have mentioned that traders in the Tier II and III cities in some cases aren’t even aware of its implementation in the imaging industry. Although they couldn’t come on record to comment on this story, but they were still continuing to bill under the earlier VAT even post July. 

However, things seem to be settling down now with positive sentiments amongst the industry. The industry experts believe that post 15th August the markets should start working like before and by the time seasonal sale starts, things will be in full swing.

“The acceptance of the new policy and reform is open to the interpretation and perspective of the trader. If they are willing to accept this change then like other things it becomes easier to manage and one can find a way. However if you aren’t willing to change then you might find the new reforms as one challenge after the other,” says Nikhil Mehta, Proprietor, Mehta and Sons.

Undoubtedly GST is aimed at increasing the taxpayer base by bringing SMEs and the unorganised sector under its purview. For the Camera and Imaging industry considering above benefits in terms of CST, Entry taxes and others will make the Indian market more competitive than before and create a level playing field between large and small enterprises. It will also give Indian businesses an opportunity to better compete with foreign countries such as China, Philippines, and Bangladesh. 

However, all will not be smooth sailing since a policy change of such a huge nature is sure to be faced with teething troubles.