Impact of GST on different Industries in India
The GST Bill is designed to be a pragmatic tax alteration aimed at simplifying the complexity of the existing tax systems, bringing down the production costs of goods & services, and clearing the disarray of variable value-added taxes (VATs) at all transaction levels. Simply the GST can be defined as a tax which takes into account the input credit tax liability while being levied and assessed at every stage of transactions of goods or services.
Take a looks at its impacts on different industries in India
Industrial experts hope that there will be a significant improvement in Indian pharmaceutical industry’s supply chain efficiency along with the decline in manufacturing cost of Pharmaceutical products. Industry’s traditional cost and distribution model will get replaced by supply chain efficiencies resulting in decrease in cost and increase in margin. Its is expected to also benefit the drug makers due to its objective of simplifying tax structure. But application of rates to pharma is still unknown and it depends upon government to apply less tax to essential medicines. There are still some negative impacts of GST on industry like medicine which have tax on them around 5 percent will experience a tax hike till 13 percent, It will also impact free-drug samples and expired material return system. It will have good influence warehousing strategy, manufacturers can set their warehouses at strategic locations as they were maintaining it before in different states before to avoid Central Sales tax. Another drawback of GST is that it is still unclear that life saving drugs and medical devices will be continued to be exempted from the taxes after its implementation. The whole industry is waiting for the details of tax rates, exemptions and legislative framework for implementation which is to be finalized by the GST council.
Union minister Mr Dharmendra Pradhan depicts that petroleum would come under GST. Presently, while products such as kerosene, naphtha and liquefied petroleum gas are part of the GST, five items crude oil, natural gas, aviation fuel, diesel and petrol do not come under that cover. He mentioned that all petroleum products to be part of the GST and it will be advantageous for states. Previously minister of finance Mr Arun Jaitley said terming GST as political package that petroleum is part of GST but it will apply on petroleum only after all the states through the GST Council agrees upon it.
Experts says that after GST implementation that tax rate on IT services may increase till 18% to current 15%. In case of software sales, as per current law in most of the states the VAT is around 5% and Service Tax is around 15%. So here as per the current system there is dual taxation effect but under GST the rate seems to come down as there will be only one tax. An IT service provider can take the Input credit on Purchase of Goods for setting up the necessary infrastructure within their GST output liabilities. Currently, all the service providers are registered under Central Service Tax dept. and billing, utilization of credit done from a single location. However, under GST all the offices need to register for their location and supply of service. For small software companies who are having only one location of business, there will not be much difficulties. However, for big IT service providers and MNC’s this will lead practical difficulties as the registration and other enacting matters to be taken care for each location and supply of service.
GST can have long-term positive impact on the chemical sector. Almost every predictable impact of GST on the Indian industrial sector looks positive, especially for the chemicals industry. Chemicals businesses in India have long suffered the wrath of added taxations on their production capacity as well as their consumption demands. The existing taxations have impelled the rise in the production costs of manufacturing vital chemicals, which has resulted in the price-hike of the end products and made such goods unaffordable for gross consumption. That’s why the GST Bill can trusted to be seminal for the unbarred progress of the Indian chemicals industry in the years to come. The prime benefit of implementing the GST legislation is that it will integrate the chemicals market by decimating the tax complications grappling the interstate trade of chemical companies thus causing unifaction of taxes. The facilitation of national trade has been hampered by the surging VATs implied on manufacturers of chemicals. The mitigation of CGST and SGST will also lower the cascading effect of multiple taxations on the production capacity of chemical industries resulting in reduction of production costs. But the GST rates need to be same in every State in India, avoiding the conflict of interests between the State Governments.
One sector that could be in for changes is the print sector. Currently, among all mediums, print is the only one that is exempt from any form of indirect tax. Print companies in India import newsprint. In today’s world, newsprint is not liable for any import credit. And it will be a huge challenge to match off those credits across their printing locations and sales offices across different states. Even if they are exempted, it will be a cost. In both cases, it is going to be a little negative for print companies. The impact of GST on the print industry is still vague. Professionals will have to wait for the GST draft guidelines and the substantive stand of the state governments in its successful implementation. The effect of GST on print industry will be known only after it is put to practice
Textile sectors play a very important part in the development of the Indian economy with regard to GDP, Export promotion, employment, etc. The textile industry is the second largest industry which provides employment to skilled and unskilled Labour.
Currently most of the States in India have exempted textiles and fabrics from the levy of Vat. Moreover excise duty exemption option was also provided with a condition of non-availment of cenvat credit. After GST Implementation, there can be a rise in the effective tax rate to have a negative result on the textile sector as compared to present taxation. As CGST and SGST rates are likely to be larger comparing current textile sector rate. In GST textile output will be taxed and Input tax will be a allowed as credit. Taxes paid on purchase and investment of capital asset and material can be claimed as credit. There are 3 monthly regular returns to be filed in addition to one annual return followed by audit report. Increase in number of returns could increase compliance and overall burden. GST would be levied on supply of goods or services. Inter-State stock transfers between different units of an entity would be subject to GST. Overall GST will significantly change the present structure of Textile Industries. Actual result will be shown only after implementation. The tax burden will shift to the ultimate consumer by claiming the credit of taxes paid on input.
Telecom is one of the most basic and critical infrastructure services and has a massive outreach to more than a billion subscribers across geographical boundaries. Telecom faces several issues under the current indirect tax regime and, therefore, the sector has high hopes from the proposed GST regime. However, the model GST law does not appear to bring an end to the issues being faced by the telecom sector. Under the GST regime, states get the power to levy tax on services also and, therefore, requiring a service provider to take state-wise GST registration instead of a centralised service tax registration under the current regime. The multiple state-wise registration would tremendously increase efforts and cost of compliance for telecom companies. In absence of uniformity of GST rates across States, issues with regard to pricing of recharge coupons for pre-paid customers are likely to crop-up. Unfortunately, the problem of inadmissibility of credits relating to expenditure on passive infrastructure doesn’t seem to have been clearly addressed in the draft model GST law and there still remains ample room for credit blockages in the proposed regime. This not only vitiates the seamless flow of credit, one of the hallmark principles of GST regime, but also triggers a fresh round of litigation for the sector. Ever increasing penetration of internet services and growing user base, makes it a necessary that burden of high costs which the telecom sector currently faces is minimized.