By Cost Accounting, Economy can do better in GST| All youtch club


The Goods and Services Tax (GST) is a step towards major reforms in the structure of indirect taxation in the country. It has a profound impact on all business houses and their strategies. Given that the GST is a destination-based tax structure, it will also change the revenue structure of government and central governments. 

By-Cost-Accounting-Economy-can-do-better-in- GST


By amending the Constitution of India through the 122nd Amendment, all state governments were empowered to tax services and the central government was empowered to collect property tax. A regulator called the GST Council, which has representation from all states and the central government, will address GST issues at the national level and play a role in the agency's recommendation to the central government for decision final.


With the introduction of the GST, the method of calculating the indirect tax on goods and services will change and the indirect tax will be calculated on the same amount or the same price. It will cancel the cascading effect of taxes. There will therefore be no payment of VAT on excise duties. With this change in method, the cost of products and services will decrease. Under the GST, the import tax credit (ITC) will be available for all types of input supplies, that is, within and between states; It will further reduce the cost of products and services. The introduction of single return formats for states and central governments with the same calendar period and having all transactions online via the Internet will facilitate the business process. The GST will also ensure the free movement of goods throughout the country by eliminating checkpoints and barriers. It will reduce the travel time of vehicles and the goods will be delivered quickly. According to one estimate, the cost of logistics will be reduced by about 20%. With the free movement of goods and the uniform tax structure across the country, branch offices or landfills can also be eliminated or reduced. It will reduce marketing overhead. Throughout the process, the consumer will benefit as the cost of goods and services decreases. By having a one-to-one correlation with all transactions, the revenue leak will be ripped off and it will strengthen the economy.

The GST process also ensures greater transparency throughout the system. All parties will be online for each transaction upon registration and linked to Adharcard, bank account number, MICR code, IFSC code, PAN number, imported export code (IEC) Company identification (CIN), etc. In addition, details of all professionals dealing with departments on behalf of their clients will also be made available and will be linked to their customer details. All dealers with any type of transaction will also be online through their GSTIN, TDS and TCS numbers and the transactions will be related accordingly.

We know that the indirect tax, that is, the GST, is one element of the total cost of a product or service, and the transparency of indirect taxation does not solve the problem. We need to be transparent in the overall management of the supply chain. As with the GST, we also need transparency and accountability in all stages before the GST. We need transparency and accountability from the product of the raw material to the consumption of the final product at the end of the consumer.


To ensure real term benefit to the consumer, it is necessary to have formal cost accounting mechanism in all type of business formats and the government should introduce costing records and audit in the way GST AND demonetization has been done in this country. Cost Accounting mechanism gives you the breakup of each and every element of cost and also tells about its methodology. Every economic activity has its social cost. So all business houses must have their costing mechanism in a transparent manner and it must be available to the government for verification through Cost Audit. Valuation of stock or inventory is one of the grey areas in any business format and with the help of Costing records inventory valuation will be more transparent. Through formal costing mechanism, it will be easier to work out the costing of a product or services and the impact of GST on it.

In GST Model LAW 2016, the government has put a big responsibility on the shoulders of CMAs and has asked them to verify various transactions of business houses through audit, inspection, verification and certification. CMAs are also entitled to appear in Tribunal in the matters related with the interpretation of law. It will help the government to ensure proper compliance of GST provisions and plucking of un- plucked areas. But unless we have Cost accounting in all transactions of value addition or chain supply, the ultimate aim of the benefit of cost reduction to the consumer will not be possible. Indirect taxation or GST is one of the elements of total cost. We need other elements of cost like raw material utilisation, labour deployment in industry, Utility cost, Administrative and marketing overheads etc.  to be addressed in the same fashion by introducing costing reforms in all economic activities. Maintenance of Cost records and audit thereof is the first step in this direction and it may derive better result than GST outcomes.

In India, Cost records and Audit is applicable to selective industries through Companies Act 2013 but it is not sufficient to ensure real term benefits of GST to the consumer. It has to be introduced in all business formats in totality. In GST greater transparency is worked out, similarly, there is a need to introduce transparency in costing process. Our resources are limited and need optimum utilisation. Through Costing we will understand the utilisation of resources in the better way. Time of gross level accounting has gone and now it’s a time of micro accounting. Formal Costing in all business formats is the only solution.

India has basic infrastructure, research work and knowledge needed for costing in industry. To implement GST in true spirit and to make the success of ‘’make in India’’ government must think to introduce Costing records and Audit in all business formats by amending all related laws. On one side it will help the industry to take the edge over world market and on the other side will generate employment in real terms. In the present scenario, the country needs minimum 50000 Cost Accountants (CMAs) to achieve the goals under GST. Let’s join hand to make India GOLDEN SPARROW again.
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