It has been 45 days since GST has been implemented in India. While the industry was worried much, the GST transition has been smooth so far. GST is one of the biggest indirect tax reforms in post – independent India. Following sections will give a clear picture of new indirect tax regime’s advantages and its initial impact of post implementation.
Key Benefits of GST essentially flow from the effects of seamless input tax credit facility (ITC), Simple procedural laws and easy tax compliances.
1. End of an era of multiple taxes:
GST is replaced 17 types of (8 Central and 9 State) taxes such as Central Excise Duty, Service Tax, Central Sales Tax, State VAT and Entry Tax with just one tax. Hence it will reduce the tax burden and compliance cost.
2. Reduction in cascading effect of taxes:
GST will reduce the cascading effect by integrating the tax systems of central and State governments. Both Centre and States will simultaneously levy GST (i.e. Central GST & State GST) on a uniform base. Also, GST is to be paid only on the value addition.
3. E – Compliance :
GST mandates only electronic filing of information relating to all compliances, starting from registration to filing of returns to paying taxes. Automation of compliance procedures would reduce errors, increase efficiency.
4. Simplified Procedure and availability of Input Tax Credit (ITC):
Earlier, entities were required to use many forms to obtain exemptions from payment of taxes. For e.g. while making stock transfers to a branch located in another state, firms used Form F to get an exemption from the Central Sales Tax and obtain input tax credit on VAT.
Similarly, exporters get exemptions from payment of VAT/CST through Forms C, Form F and Form H. GST does away with such forms and making the system more simple and transparent.
5. Low Cost
New Indirect Tax regime would lead to lower transportation and distribution costs (availability of Input Tax Credit on Fright or Transportation). The main reason for the high cost is the expense incurred on branches and warehouses. The above provisions are expected to increase the overall productivity of manufacturing, services and trading operations leading to a reduction in prices and a general increase in the economic activity.
Impact on Key Sectors – Post Implementation
The revenue collections from customs duty and Integrated GST (IGST) from imports, has almost doubled to Rs 30,000 crore in the first month of implementation. The said revenue include those on account of customs duty, Integrated-GST (IGST) from imports, Countervailing Duty (CVD), special addition duty (SAD) and cess collection on imported items.
The July month collections compare to indirect tax collection of over Rs 16,000 crore of the same month of 2016.
What is the impact of the new indirect tax regime on key sectors? Here are my brief inputs:
1. Textiles and Garments
The implementation has created outrage and protests in the sector. The textiles and garments sector is one of the largest employment generators in the country. Till recent, this sector has been out of the tax net.
The second part of Economic Survey released on 11th August 2017, says that the textile and garments sector is now fully part of the tax net. Previously, some parts of the value chain, especially fabrics, were outside the tax net, leading to informalisation and evasion. Some anomalies favoring imports of fabrics over domestic production will need to be rectified but overall the tax base has expanded.
GST is transforming the logistics industry in a country where moving stuff around is notoriously difficult to do. With effective from 1st July, 2017, Interstate check posts have been removed which in turn travel time of long-haul trucks, other cargo vehicles cut by at least one-fifth.
In pre GST India, usually, Trucks covering 225 km a day. Now, Trucks are covering 300-325 km a da6y. It is reported that A truck from Chennai to Jamshedpur carrying tyres made by Apollo Tyres reached in three and a half days as state border barriers began to be dismantled after the implementation of the GST.
3. Cement and Realty:
Under GST regime, cement bags are taxed at the highest rate of 28 per cent. However, effective taxes currently are already at about the same rate — 12.5 per cent in the form of excise and 13.5 per cent in the form of VAT. In addition, there is service tax paid on transport services. While the duty implication largely remains unchanged, the advantage is tax offset on inputs purchases as well as on service tax paid on its freight.
Further, taxes on the key raw material i.e. coal have been reduced to 5 per cent from about 11 per cent. These lower taxes will most likely reduce input costs for cement manufacturers. It is expected that most cement companies are likely to benefit from the GST.
The overall effect of GST on real estate is Nil or neutral. In Reality sector, service tax and VAT applicable in various States are subsumed into the GST. However, the developers are required to pay stamp duty, registration charges and other indirect taxes such as excise duty, etc. Under new Indirect Tax regime, they are allowed to claim input tax credit (ITC), bringing the effective tax rates equivalent to that of the pre-GST rates of 5-6 percent.
4. Auto Industry
The final GST rates have not caused any major impacts on automobile industry, except hybrids. Since, maintaining status quo on small cars & bikes, negligible impact on price is expected.
Further, as per latest proposal by the GST Council, an increase of cess from 15 percent to 25 percent on large cars and SUVs, which are expected to be taxed at a lower 53 per cent (28 per cent + 25 per cent cess). Total indirect taxes add up to 50-55 per cent currently.
Utility Vehicles sales grow at 36% in July.
Sales of utility vehicles grew 35.52% in July to 86,874 units. Data from the Society of Indian Automobile Manufacturers (Siam) showed that sales of
Passenger cars grew at 8.52% to 1,92,773 units,
Two-wheeler sales rose 13.73% to 1.68 million units,
Vans – 19,350 units,
Total Passenger vehicles – 298,997 units,
Total CVs – 59,000 units,
Total two – wheelers – 16,79,055 units in July
5. Fast Moving Consumer Goods (FMCG)
For FMCG Space, the GST brings good reports on the back of lower tax incidence when compared to the total tax paid in earlier tax regime. However, the household and personal care segment is gaining the most, with close to 5 to 7 percentage point reduction in taxes.
Under previous Tax regime, FMCG products such as soaps, toothpaste etc. were charged excise duty at 12.5 per cent plus state VAT of 13 to 14 per cent. Hence, overall effective indirect tax rate amounts to 24-27 per cent. With GST rates on each of these products fixed at a lower 18 per cent, FMCG companies are gaining.
In the beverages category, tax rates on fruit juices and beverages containing milk are fixed at 12 per cent under new tax regime. These rates are lower than that under previous regime.
6. Telecom Industry
Previously, the telecom industry was taxed at 15 per cent. Under the GST Regime same is taxing at 18 percent. A hike of 3 percent in tax will definitely pressure their margins, who are already facing intense competition in domestic market.
However, availability of input tax credit (ITC) on capital expenditure, the impact of tax will be reduced to some extent.
It remains to be seen what impact the Goods and Services Tax (GST) will have on the Indian economy in the long run.
Source: Finance Ministry
Do you think CBDT should extend Tax Audit Report and relevant ITR Due Date? Please Comment, Vote, Retweet and Like.— Tax Guru (@taxguru_in) September 18, 2018