Demonetization & GST Cascading effect on the Cleaning Business

[box type=”shadow” ]The cleaning industry in India too has been weathering the aftermath of demonetization and the proposed Goods & Services Tax (GST) introduced in the last quarter of 2016. So much so that the impact of both demonetization and GST is evoking diverse connotations from those engaged in the cleaning business. Mohana M gauges the impact of these two most-talked about policies on the business of cleaning. [/box]

What began as a casual talk with the cleaning fraternity at Delhi, turned into a healthy debate on whether demonetization and GST will benefit the cleaning industry, will it have any impact at all or will it knowingly or unknowingly further squeeze the pockets of the cleaning magnates.

The initial lull experienced in the cleaning business following demonetization is actually picking up now, restoring the confidence for some and at the same time clouding the conviction of others.

While, the move to demonetize and introduce GST is the best of the moves that will make way to reduce the corruption in the cleaning business, it is not the same across the board.

As Deepak Baluja, MD-Final Technologies, asserted that a daily wages labourer who is working to get his Rs.400 at the end of the day would not work if he is offered a cheque at the end of the day. “Agreed that there is Jan Dhan, ATM… and so on but how are we going to convince these daily wage workers who live on what they receive daily. My business is floor polishing and the labourers engaged are prepared to work only on daily wages.”

Of course, the floor polishing segment has found another source of doing their business without daily wage labourers to sustain themselves; but would this mean that those labourers who were earning an income through a job they did best, have been forced to look out for another means, because of demonetization?

Similarly, service providers who will be subjected to GST will also being customs on procuring the cleaning machine? While some agree that Customs should not be levied on cleaning products, especially when cleaning is on the national agenda, others are concerned that lifting customs will adversely affect the Make in India concept.

‘Will set a perfect business scenario’

“In my opinion, demonetization has helped the business model. Whichever means would help bring in

a] transparency
b] monitorable accountability and
c] contribute to upgrading the dignity of labour.

This should be welcomed by the industry, as it will help the segment to go closer to being an industry and be more organised.

Demonetisation has helped reduce the cash transactions and has ensured to add opening of bank accounts or paying directly through cards. The greater impact would also be with the manpower to feel the need for the same and not get distracted by the lure of cash.

As such, there are no hardships of the cleaning industry – at least not more than any other industry would or must be facing. Today, we see more and more customers valuing the means of wage distribution and the demand for maintaining the statutory demands. These are sure to translate to adding value to their premises and socially uplift the people engaged in the trade.

The increase of wage limits, opening of UAN, online access to PF and ESIC, all this is probably going to lead to the unskilled employee getting nearer to the tax paying bracket. In the long run, this would enhance their social status, behaviour, outlook to life and to work as well. There is a reason why the developed countries have respect for the janitorial staff and the value assigned to their work. We, as a country, are progressing in the direction and must embrace and encourage the movement.

Speaking of GST, if we broadly categorise the cleaning products, then, majorly it is the cleaning machines that are imported to a large extent. The other supplies such as chemicals and consumables, are predominantly manufactured in the country. The customs duty, according to me, is trying to protect domestic players against dumping by the international parties and the CVD (counter veiling duty) is levied in place of excise duty. This means, largely it is the cleaning machines that are subjected to the duties and more often than not, these are amortised over a period. Even if both the duty and tax are waived, it would still make a difference of probably less than 1-2% on the contract value. Having said that, it is not to discount the fact that if done, it would make the products available at a cheaper rate.

The procedures for the registration to the GST are well defined. The business would probably need to seek assistance from consultants in the field to do it smoothly. The intricacies of the business would need to be understood by the personnel executing the task for better accuracy of the process.

However, the nature of the industry is demanding either/ and of the VAT and service tax. This necessitates double the task of payment, filing returns, assessment, etc. With the GST, we should look forward to the job being made simpler – single line. This would mean less hassles and more productivity.”

Vinay R Deshmukh
COO, Forbes Facility Services Pvt. Ltd

‘Lift Customs on cleaning material’

“Demonetization has not had much impact to the cleaning industry at large, since most of the companies have streamlined their payment process through online banking transactions. Overall demonetization will be advantages to cleaning industry to standardize the pricing pattern through its transparent process.

Post demonetization, we have not experienced any hurdles in operations since the team is following the standards and financial measures in all our dealings. In general, overall in the Industry too, there are no specific complaints on major issues. Most of the structured / reputed organizations are strictly adhering to the industry practices to maintain their service standards.

I strongly believe that the companies strictly following employee / employer statutory employment norms would not have experienced any long-term impact on contract labour issues. However, since majority of labours are poor or developing sections of the economy, the recent minimum balance restrictions planned by certain banks may make it tough for them to withdraw their earnings in full. It is suggested that at least the salary account holders should be strictly excluded from the minimum balance rule.

As far as GST is concerned, it will have a major cost impact in the industry, if the tax is raised above the current service tax percentage. Since major cost of such industry liaise with labour, which attracts service tax while billing. However, if GST is maintained at higher rate, the cost for the service provision also will increase which may force the client to downsize the manpower requirement to control the cost. Apart from the labour, considering the import of specific cleaning chemicals, tools and machineries, the cost of the cleaning will increase significantly with addition of GST over and above to the import custom duty. As we are steering towards infection free and environment friendly implementation across India, it will be sensible, if the decision-making authorities seriously think over it to lift the import of customs duty for cleaning materials. This will ensure that the financial load is unnecessarily not added to the client where it will be difficulty for them to decide and maintain such services as expected.

ervices in the cleaning industry is by implementing advanced technology-driven tools and machineries; thus, optimizing manpower requirement to maintain the service standards consistency and quality all through in a cost-effective manner.”

M.K. Padmanabhan,
Chief Executive Officer, Faber Sindoori Management Services Pvt. Ltd

‘Will create a transparent system’

“Well, demonetisation had an initial adverse effect on some of the few small contract cleaners who are basically dependent on cash disbursals. However, things have more or less settled down and every company is gearing up to have implemented proper processes and accounted transactions. This will also help the labour class, who have, all this while been deprived of ESI and PF facilities since they were on cash payments.

While demonetisation has brought out black money from the coffers, what needs to be done is cleaning up of Government bodies as well, as far as corruption is concerned. Once that is achieved, every industry segment, including cleaning industry, will benefit from a transparent system.

On the other hand, GST implementation which will surely eliminate the various requirements of Octroi, road permits, way bills, etc., which is a nightmare at present. One tax and NO COLLECTION of C-forms is one thing we are looking forward to. We need to watch what is the percentage of GST will be applied to our industry.

Meanwhile, import duty for sure must be removed on cleaning products since these products should be made available at much affordable price for customers, more so because our country needs a lot of cleaning.”

Vivek Mata, MD, Charnock Equipments
Pvt. Ltd and Charnock Cleaning Academy

‘Lifting customs will hit Make in India initiative’

“We had no impact on our cleaning business due to demonetization. FMCs dealing in cash would have faced difficulties due to shortage of cash. However, it should help companies reduce cash transaction and this should bring about fair practices into this industry.

Speaking of customs duty, I don’t see government lifting customs duty on imports of cleaning equipment. Lifting customs duty will not be in line with Make in India initiative.

In fact, post GST implementation, the net price of imported cleaning equipment to customer will reduce. The distributor or importer will be able to pass on duties to end customer who can further claim it back. This will help to reduce gap between manufactured equipment in India and imports.

Cost of equipment will reduce for FMCs as they will be able to take GST benefit as there will be no excise or service tax post GST implementation. I believe that will give a boost to the cleaning industry.”

Sumeet Bansal, Deputy General Manager-
Marketing, Godrej & Boyce Manufacturing Co. Ltd

[box type=”shadow” ]Irrespective of the present hardships and uncertainties, the industry is highly hoping that things will turn tables in the long run. This positive sentiment will certainly smoothen the path ahead and at the same time strengthen the industry internally.[/box]

‘Swachh Bharat will get momentum’

“Yes, it is true that demonetisation slowed down the cleaning industry, especially in the auto and retail sectors which is largely dependent on cash circulation. With contract labour, I do not see major issues considering the Government initiatives of Jan Dhan accounts and Aadhar cards. Demonetisation did impact business temporarily in the end of the last quarter of 2016 and the next three months but recovery has started in 2017. I think this was a short-term turbulence and the steps taken by the Government to clean the economy will benefit also the cleaning industry in the medium to long run.

As I said, though there were hardship for small dealers and certain sectors, in the long run, it will bring in transparency and efficiency. Further with more funds coming in the Government coffers, Swachh Bharat Mission will get further momentum and help our industry to grow and become more mature.

While, I do not think the Government will lift the Basic Custom Duty, but with GST coming in, Industry will enjoy a small relieve due to tax credits for custom duties paid which is a cost today and imports will become more competitive. The Cleaning Industry will have a mixture of positive and negative impacts. The most important positive impact will the availability of seamless tax credits, improved and faster logistics, free movement of goods throughout India and a simpler tax structure. The possible negative effect will be on cash flows and increased compliance burden.

The key to successful GST implementation is to start early analysis of the required changes and prepare an action plan. As for most of us the tax changes are a very complicated matter, I strongly recommend that companies should hire consultants who help them to implement all the changes on time as 1.07.2017 is the deadline. Businesses should start to look into required changes on pricing policy, credit policy, inventory, cash flow and logistics optimisation which will be the key strategic areas to be taken care off. IT change implementation and trainings for the employees hold significant importance to smoothen this process.”

Ruediger Schroeder, Managing Director, Karcher
Cleaning Systems Pvt. Ltd

‘It will strengthen healthy competition’

“When it comes to demonetisation, the Indian cleaning industry, like every other industry in the country has certainly felt a shift in the way it operates. Certainly, when it comes to labour issues, the lack of cash has created a labour pinch but not to the extent that daily operations are adversely affected. Of course, being a chemicals manufacturer, Buzil-Rossari has been immune to some of these shocks as most of the business is carried out via electronic or cheque payments. Aside from the temporary glitches though, the demonetisation has not seen our company face too many problems.

As for the GST, this holds great promise for our industry. Aside from streamlining the tax structure for manufacturers, it will also simplify our financial operations. As a manufacturer that puts a premium on producing our products within the Indian market, we welcome the new GST paradigm that will ensure that producers are not adversely affected by their geographical location. Our outlook is that this will only strengthen the healthy competition between the players in the cleaning chemicals sector while also encouraging more companies to invest in Indian manufacturing. By incentivising local production and reducing the clerical burden of having to deal with a mish-mash of different indirect taxes, the GST will make it even more attractive for companies to Make in India!

Finally, in the long run, anything that creates a system whereby businesses are on a level playing field is good for the entire industry. The cleaning industry both in the retail and wholesale sectors has begun a trend towards making their products cleaner and greener. An important part of this process is developing sustainable supply chains which will be greatly enhanced by the introduction of the GST. Therefore, it is our opinion that these developments will be beneficial overall to the economy and especially to the cleaning sector by encouraging more companies to invest and innovate in the long run.”

Edward Menezes, Director, Buzil Rossari