The biggest tax reform in the post-independent India is all set to roll out. As in any major reform of this nature, there are bound to be some winners and some losers. What is important however is that the nation will move to a more uniform single point indirect tax from the plethora of state and central levies that had a basket of complexities in doing business. The foremost pain point was the cascading effect of various taxes on the end consumer. For most goods and services, the aam aadmi paid about 30% in taxes from every rupee that he spent on purchasing services or goods.
How much would GST be?
As we start the second of week August, the exact percentage of GST to be applicable is still being debated. However, most people expect this to be pegged at 18% while some quarters opine that the rate could be as high as 23%. Irrespective of the final decision, sectors that are presently enjoying a lower tax of 12 to 15% will see a marginal rise in their final pricing.
What GST seeks to address is removing the cascading effect of an array of state and central levies on goods as well as services. Here is a good illustration of how cascading effect of taxes work presently and how it would be after the GST rolls out. In simpler terms all taxes paid between the raw material and the finished goods are credited back to the players within the supply chain. The final consumer pays a single tax and that could potentially save him 10 to 20% on the final price he pays.
Decision deferred on petroleum products
Inclusion of petroleum products within the GST basket is still being debated and it could take some time before we can see rationalization of taxes paid on various items under this head.
The following is a sector- wise analysis on the impact of GST
Presently media companies pay 15% service tax plus an entertainment tax at 7%. This will get subsumed in a GST of about 20%. Pricing is likely to come down marginally while the industry will also be able to cross utilize credit from goods and services. This sector may have to watch how entertainment tax imposed by the local bodies pans out post GST.
E-commerce will benefit from reduced trade barriers between states. Tax compliance cost is likely to increase and prices could go up marginally. This sector will need to consider restructuring of reverse logistics and supply chain management.
Stamp duty on land and built up homes will continue to stay. In addition GST will also apply. However, the sector can take advantage by cross utilizing credit on services and goods under GST. The sector will need to evaluate its pricing and optimize prices considering the tax credit from inputs.
Read more – Effect of GST on Real Estate
The tax burden for Logistics will move up from about 15% to 20%. The sector therefore will suffer a marginal price increase. However, supply chain is expected to be redesigned by other sectors and this can benefit the Logistics sector.
Tobacco and alcohol
As is the practice with any government, consumers of alcohol and tobacco products would cough up more to enjoy their pleasure moments. But, then, Indian women in general will be happy with such a measure since more men would be expected to quit smoking and perhaps reduce their alcohol consumption, if not give it up totally.
Remember that only the first hurdle has been crossed. There will be a series of discussions with the state governments, implementation agencies and other stake holders before GST is actually rolled out. Training personnel, relocating people, software and public education are all in the pipeline.