IMPACT OF GOODS AND SERVICE TAXES (GST) IN VARIOUS SECTORS

IMPACT OF GOODS AND SERVICE TAXES Government of India set up the Empowered
(GST) IN VARIOUS SECTORS Committee of State Finance Ministers with
the Hon’ble State Finance Ministers of West
Abstract
Bengal, Karnataka, Madhya Pradesh,
Maharashtra, Punjab, Uttar Pradesh,
Gujarat, Delhi and Meghalaya as members
GST also known as the Goods and Services
with the following objectives:
Tax as the giant indirect tax structure
designed to support and enhance the • To monitor the implementation
economic growth of a country. More than of uniform floor rates of sales tax
150 countries have implemented GST so by States and Union Territories
far. However, the idea of GST in India was
• To monitor the phasing out of the
mooted by Vajpayee government in 2000
sales-tax based incentive
and the constitutional amendment for the
schemes;
same was passed by the Loksabha on 6th
May 2015 but is yet to be ratified by the • To decide milestones and
Rajyasabha. However, there is a huge hue methods of States to switch over
and cry against its implementation. It to VAT
would be interesting to understand why • To monitor reforms in the
this proposed GST regime may hamper the Central Sales Tax system existing
growth and development of the country. in the country.
This paper made an attempt to explain the
history and impact of various industries The Following laws have been
this GST (goods and services tax) on the passed by the Parliament
growth of the economy, and benefits for the followed by President’s
business and government and for the
consumers. Law Status

Objectives of GST:
Central Passed by Parliament
 To Study on History and Background GST Bill, 2017 followed by Hon’ble
of GST. President’s assent
 To Analyze the impact of GST in Integrated Passed by Parliament
various Sectors. GST Bill 2017 followed by Hon’ble
President’s assent
History of GST:
Union Passed by Parliament
“Good and services tax” means any tax on Territory- followed by Hon’ble
supply of goods, or services or both except GST Bill, 2017 President’s assent
taxes on the supply of the alcoholic liquor GST Passed by Parliament
for human consumption. The origin of (Compensation followed by Hon’ble
Goods and Services Tax could be traced to States) President’s assent
back to 17th July 2000, when the
State To be passed in
GST Bill, 2017 respective State
Assemblies
IMPACT GST: construction of immovable property which
GST has been implemented from 1st may lead to the rise in litigation. GST is
July 2017. With the introduction of GST, supposed to benefits real estate sector by
most of the indirect taxes will be replaced ensuring a uniform and easy compliance
by “one nation one tax” regime. GST council with the tax structure.
has proposed four different tax slab rate of
5%, 12%, 18% and 28% on the different Impact of GST on Automobile sector
category of goods and services. The full-
To see the impact on automobile industry
fledged impact of goods and services tax in
we have to understand the current tax
real terms should come out after the period
structure. Currently, automobile sector is
of 2-3 years. One tax regime is designed for
paying taxes around 27 percent to 45
the ease of doing of business in India. Under
percent, though this tax structure ranges
the current regime, financial services and
from a small car to SUVs. The proposed one
transactions attract 15% of service tax but
tax regime rate for the automobile sector is
with the introduction of GST financial
18 percent and for a luxury vehicle,
services would attract 18% of tax. With the
proposed rate is only 28 percent hence this
new GST regime, surely, we are going to be
would result in the lower cost of purchase
impacted. Let us see how and in what
for the consumers.
manner it will impact your money.

Impact of GST on Mutual Funds

Impact of GST on consumer products
Investors have to pay more tax as
Consumers goods are expected to become
compared to current tax regime but in
cheaper under one tax regime. The present
reality, change is so minimal that it will not
rate of taxation is around 25-30 percent on
affect them. Mutual funds impose a Total
consumer goods and proposed goods and
Expense Ratio (TER) on investor which
services tax rate is around 18 percent
ranges from 1.25 percent to 2.75 percent.
hence making it cheaper. GST is also
With the introduction of GST, it will rose to
supposed to address the challenge of tax
4-7 basis points. 100 basis points
leakage in the supply chain. GST is quite
accumulate to form 1 percent. Hence it is
beneficial for the consumable good .
quite clear that 4-7 basis point increase in
Total Expense Ratio (TER) will not affect
Impact of GST on real estate investors.
The impact of goods and services tax on Impact of GST on banking sector
real estate sector will be positive as GST Like every sector, banking sector is also
will helps to remove the multiple taxations getting impacted by the new goods and
which are a pain for both the consumers services tax regime. One tax regime effect
and builders. Some of the clauses in model on banking sector is twofold. Banking
goods and services tax law restrict credits services like fund transfers, ATM
on goods and services acquired for the
withdrawal, and loan processing fee, which Chemical sector in India has long suffered
attracts service tax under current regime is the wrath of multiple additional taxes on
15 percent now will attract tax at the rate their consumption capacity as well as their
of 18 percent and services which do not consumption demands but now this seems
attract service tax under current tax regime to end with the introduction of goods and
like opening bank account and fixed services tax. The easing of CGST and SGST
deposits, will not be impacted by the will result in the lower cascading effect of
introduction of new goods and services tax multiple taxations on the production
regime. capacity of chemical industries resulting in
a reduction of production costs hence
benefiting the chemical industries.
Impact of GST on insurance policies
Under current tax regime premium on
insurance policies is taxed at the rate of 15 Impact of GST on telecom sector
percent but with the introduction of Goods The proposed goods and services tax will
and Service Tax (GST) it will increase up to end the issues related to the classifications
18 percent. But this increase in tax rate will of software, sim card, and franchise fee,
be offset by input tax credit. among others. Like all other sectors, the
elimination of duality of taxes is expected to
help the growth of telecom sector as well
Impact of GST on cement industry
and ease the doing of business. However,
Looking to the current scenario cement proposed rate of telecom sector under the
industry is paying around 27 to 32 percent goods and services tax is 18 percent which
as tax and with the introduction of goods is higher than the earlier rate of 15 percent.
and services tax, it is supposed to come
down around 28 percent. Cement industry
does not have much relief from the Impact of GST on Pharmaceutical
proposed goods and services tax regime. Industry
One tax regime is likely to have a negative In terms of value, Indian pharmaceutical
impact on cement industry and it is also industry is world’s 14th largest
supposed to bring the downfall in pharmaceutical industry. goods and
manufacturing and mixture sector as well. services tax will benefit the pharmaceutical
industry by making the taxation process
easier and replacing most of the indirect
Impact of GST on Chemical Industry
taxes and duties. The new one tax regime
GST will have a positive impact on the taxation rates have included
chemical industry. Almost every pharmaceutical products into two tax slab
predictable impact of the goods and one is of 5 percent and another one is 12
services tax on any sector of Indian percent. Ayurvedic drugs and medicines
economy seems positive but for the would become costlier after the
chemical industry, it seems much positive. introduction of GST.
Hotel and Tourism etc. The gold industry is the biggest market
Tourism and hotel industry play an in the world. GST on the gold industry hits
important role to India’s GDP. to consumers. 3% GST rate that is
applicable to 10% import duty and 5%,
GST rates for hotels are different according
making charges which lead to rising the
to their tariffs jewellery prices in India. The demand for
 Less than Rs. 1000 = 0% (GST free) Gold may fall 50 to 70 percent. But there is
 Rs. 1000 to 2500 = 12% more transparency in the gold industry due
 Rs. 2500 to 7500 = 18% to the GST implementation. It will definitely
 Above Rs. 7500 = 28% turn in a positive impact on a long term.

It is expected that the cost of tour packages may Textile/Readymade Garment Sector
come down due to the relief to tour operators
under GST regime. 5% tax is liable on tour Textile industry will be benefitted through
operators currently. GST implementation in India

The advantages are following:

Logistics Industry
 Break in input credit chain supply
The logistics industry is the backbone
of Indian economy and it is estimated to be  Reduction in manufacturing price
worth about $200 up to 2020. After the
 Input credit allowed on the capital
GST, the time taking clearance process has
goods
become easy i.e less transit time.
Corruption activities are reduced in logistic Ready-made garments up to Rs. 1000 is
services. GST reduces the overall cost of exempted from GST and branded garments
logistics services and increases business above Rs. 1000 will be taxed at 12%.
revenue.
IT industry
All IT services and software products, as
Banking Sector
well as freelancers, are levied 18% GST
18% GST rates levied on banking services rate. Overall positive impact on IT industry
like insurance policies, ATM transactions of GST. Cascading effect is removed through
etc. The earlier tax rate was 15%. Banking
GST implementation. IT will make changes
and financial services become costly. GST
has reduced indirect taxes, i.e. Ease of doing in the process of business process. ITC
business in the banking and financial sector under GST will Bring down the operating
Which leads to increase in business. It will costs and increase the profitability of the IT
increase demand for funds and digital industry.
transactions in the banking industry.
FMCG industry (Fast Moving Consumer
Gold Industry
Goods)
18% GST rates levied on banking services FMCG sector is one of the biggest economic
like insurance policies, ATM transactions platforms in India. After the GST
implementation, Mostly FMCG products  Elimination of multiplicity of
and services are taxed under 18 to 20 taxes and their cascading effects
percent. Lower GST rates, give Benefits to  Rationalization of tax structure
the business holder, manufacturers and and simplification of compliance
consumers directly. procedures
 Harmonization of center and
E-commerce State tax administrations, which
E-commerce websites such as Flip kart and would reduce duplication and
Amazon.in will have to collect TCS (tax compliance costs
collected at source) at a fixed 1% rate, and  Automation of compliance
pay this collection to the sellers listed on procedures to reduce errors and
their websites. This is likely to impact increase efficiency
prices and make online shopping more
One point single tax:
expensive. Though the issued by the
government stated that the provisions of There would be focus on business rather
“TDS (Section 51 of the CGST/SGST Act than worrying about their taxation that
2017) and TCS (Section 52 of the may crop at later stages. This will help the
CGST/SGST Act, 2017) will be brought into business community to decide their supply
force from a date which will be chain, pricing modalities and in the long
communicated later.” run helps the consumers being goods
Also to deal effectively with GST, e- competitive as price will no longer be the
commerce platforms are regularly engaging function of tax components but function of
and training the sellers on their stores. sheer business intelligence and innovation.
Commenting on GST’s impact Rajiv Kumar,
Founder, e-commerce website Store Hippo Reduces the corruption:
has stated: “We are thrilled to announce the As the number of taxes reduces so does the
reformation of our tax engine in accordance number of visits to multiple departments
to GST. E-Commerce platforms need to reduces and hence, the reduction in
provide flexible and powerful tax solutions corruption. In all cases except a few
after the implementation of GST and Store products and States, there would be
Hippo facilitates this through its new move, uniformity of tax rates across the States.
aimed at simplifying GST for all involved.”
Benefits of GST CONCLUSION:

GST has been envisaged as a more efficient The proposed GST regime is a half-hearted
tax system, neutral in its application and attempt to rationalize indirect tax
attractive in distribution. The advantages of structure. More than 150 countries have
GST are: Wider tax base, necessary for implemented GST. The government of India
lowering the tax rates and eliminating should study the GST regime set up by
classification disputes various countries and also their fallouts
before implementing it. At the same time,
the government should make an attempt to 7. http://www.livemint.com/Politics/
insulate the vast poor population of India q3JIl1G2gPxrzY3mAJY8nJ/How-
against the likely inflation due to GST-impacts-auto-real-estate-retail-
implementation of GST. No doubt, GST will telecom-and-retai.html
simplify existing indirect tax system and
will help to remove inefficiencies created
by the existing current heterogeneous
taxation system only if there is a clear
consensus over issues of threshold limit,
revenue rate, and inclusion of petroleum
products, electricity, liquor and real estate.
Until the consensus is reached, the
government should resist from
implementing such regime.
GST will also motivate foreign direct
investors to invest and setup industry here
in India. This will create job opportunities,
and for a developing economy like India it’s
always a favorable situation. It will make
the supplies being priced competitively so
benefitting the ultimate consumers.
References:

1. Kankipati Ajay Kumar, A Journey of

Goods and Services Tax (GST) and
Structural Impact of GST on the
Growth of GDP in
India, International Journal of
Journalism and Communication.
2. http://www.hindustantimes.com/b
usiness-news
3. http://www.gsthelplineindia.com/b
log/2018/02/26/impact-of-gst-on-
various-sectors/
4. https://www.dbs.com/in/sme/busi
nessclass/articles/economic-
outlook/impact-gst
5. https://gst.caknowledge.com/list-
taxes-included-gst-benefits/
6. https://blog.allindiaitr.com/how-
gst-can-impact-various-sectorss