Price difference Post GST: Is it just about taxes?

So GST is here to stay!! For many businesses and common man, the impact of this is yet to sink in. Many were hoping till the last week of June that somehow something will make the Government push the GST to another date. But now that we have GST, we would like to talk about the one thing that most organizations are yet to figure out – the price difference that they may need to pass on to their customers. So, is there an option not to – organizations ask? In our view, no. Even if the dreaded anti-profiteering clause is not enforced strictly, the competition is going to sooner or later reduce the price forcing everyone else to fall in line.

That gives raise to few questions. What are the components that need to be considered for working out the price difference? Is the difference just the “tax rate difference” that the vendor charges and the “input credit set-off” the Company would get? We believe it is beyond that. The following example should make it clear:



The savings in cost to the manufacturer post GST is Rs. 3,254 (Rs. 19,094 minus Rs. 15,840). Below chart represents where the savings came from:



Very clearly two big components emerge:

  1. The tax charged by each vendor in the entire supply chain within India
  2. Margin that each vendor adds on the tax components

Organizations should, thus, map their entire supply chain beyond their immediate vendor to realize maximum saving potential. The challenges they may face would be the extent of details their vendors would be willing to share. And here is where the “art of negotiation” of the business heads comes in handy.

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