Sensational!!! Why China is most worried about India’s GST?

“One tax, one market for one nation”- The Goods and Services Tax (GST) is expected to act as a catalyst for the transformation of business across all sectors.

China is India’s largest trading partner, source of imports and fourth largest export market. Moreover, India is China’s largest trading partner in South Asia and ninth largest export market in the world. China-India trade cooperation has deepened over the years and the bilateral trade has grown 24 times in 15 years, from $2.9 billion in 2000 to $71.6 billion in 2015.

The new taxation regime, by its design, is likely to break the interstate supply chain of cheap Chinese products. However, imports of large products will not face the heat, but the unavailability of cheap Chinese products may lead to inflation in some segments.

Most of the necessary consumables consist of a major part of cheap imports from China, which are distributed through unregistered and cash-based trading networks spread across India. Toys, low-priced electronics, computer components, crockery, mobile accessories, lighting’s, stationary, plastic wares, building material and ceramics are some of the cheap Chinese imports distributed across the length and breadth of the country via major trading cities.

GST may affect the traders who have been involved mainly in distribution of low priced Chinese products across India.  The traders from main cities like Delhi, Mumbai etc may witness the era of regulated imports at least for a short period of time.

By using cheap quality materials, cheap investment on labours, heavy subsidies on manufacturing, China exports those cheap products in bulk to India. Importers pay import duty of 14-28 per cent and countervailing duty (CVD) between 0-150 per cent (average 12 per cent) depending on the products. Supply Chain of cheap imports from China starts from placement of orders to suppliers by Indian importers. After arrival of products in Indian shore, the Chinese products move across all popular markets from main cities, later all over India. These Chinese products reach last consumer through small, local retailers who are selling products through unauthorised networks.

China also exports a lot of electronic and household products which are attractive both in price and quality. Chinese products not only lowered India’s inflation rate, but also fulfilled Indian ordinary people, especially the low- income people’s daily needs, so china has good market in India.

Chinese phone brands have another issue to contend with. Under the GST regime, the Indian government could impose a basic customs duty on imported handsets. This will make phones costlier by 5-10 percent. Currently, around 30 percent of phones sold in India are imported (mostly from China).

Hence GST is going to affect supply chain management system. Supply chain is the oversight of material, information and finance that move through the process, from supplier to manufacturer to whole seller to retailer to customer. Let us see how GST affects Supply chain and Indo-china traders.

  • As GST will put an end to unregistered interstate movement of goods, the traders of Chinese products will come under the scanner.
  • Traders under exemption and incentive schemes (20 lakh-75 lakh) can’t be allowed to go for interstate trade. Therefore, supplies of cheap imports to the upcountry from regional trading centres won’t be possible without going through the GST network.
  • Only a small quantity of Chinese imports will be able to seep out from the GST network through the fake B to C trade.
  • Chinese goods may lose their price advantage if they move through the GST network after paying prescribed duties.
  • In past regime of tax, stock transfer is not taxable on being made available “Form F” where as in current GST regime stock transfer made taxable. Due to this Warehouse decision to be taken more appropriately.
  • The government has placed quite a few goods like ceramics, plastics, sanitary ware including the highly criticised sanitary napkins in higher tax brackets of GST as an apparent measure to curb Chinese dumping.

GST’s impact on cheap supplies will be painful atleast for few months and GST may interrupt Chinese import in India which is the main reason China is worried about.

The introduction of the Goods and Services Tax will be a very noteworthy step in the field of indirect tax reforms in India. By merging a large number of Central and State taxes into a single tax, GST is expected to significantly ease double taxation and make taxation overall easy for the industries. Introduction of GST will also make Indian products competitive in the domestic and international markets.

Anusha Shetty