Everything You Want To Know About Recent Goods & Service Tax (GST) In India

Why Is GST Being Implemented In India?

Currently, in India, there is a very complicated tax structure throughout the states. Multiple indirect tax structure is prevailing throughout the country. In short different states have their own tax structure, creating lots of purchase price discrimination and manufacturing cost disparity throughout the country. As per the crystal clear directive by the Indian Finance Minister Mr. ArunJaitley the GST implementation will be effective from 1 July 2017.

  • Cascading Effect – The main reason to implement GST is to reduce the cascading tax effect.
  • Streamlining The Existing Procedure – The entire tax administration process will be streamlined irrespective of the trade. All the administration protocols, tax laws and the base structure of the tax will be harmonized thus reducing price disparity and confusion.
  • Reworking On The Current Tax Slabs – There are major tax classification issues prevailing in India. By reducing the existing tax rate slabs, these issues can be eradicated.
  • Unhealthy Competition – Due to different tax structures in different states, there is a heavy price difference in all the products. In short, the price of two-wheeler will be less compared to other states due to their own internal taxes. This has lead to unhealthy competition, which will be totally cured after implementation of the GST.
  • Input Credit & Value Chain – GST will ensure input tax credit (paying for input taxes) across the value chain (value added to a product, which includes marketing, production etc. costs) throughout India.

What Will Be The Impact Of GST On Various Types Of Industries?

Depending on the industry, GST will leave its permanent impact on the product trading of that industry. Hence, in order to understand the exact impact, we should do the micro analysis of the effect, sector wise.

  1. Automobiles – The current tax range in this sector is approximately ranging between 30% – 47%.
  • As there will be the tax fluctuation between 20% -22%, the end users will get around 10% benefit thus enhancing the total demand.
  • Not only the Inter-State Easy Transportation is possible as all the internal (State) checkpoints and Octroi charges will be totally abolished but also the overall transportation cost will be reduced by considerably.

Companies benefited – Eicher Motors, Ashok Leyland, Hero Motocorp, Bajaj Auto, Maruti Suzuki

  1. Consumer Durables – The current tax range in this sector is approximately ranging between 7% – 30%.
  • All those companies, which have failed to avail the tax exemptions earlier, will be absolutely benefited by GST.
  • Complete restructuring of the price will be seen by the reduction in the price disparity between the unorganized and organized sectors, especially kitchen appliances.
  • Logistics and warehousing costs will be reduced, thus increasing the net profitability.

Companies benefited – Blue Star, Bajaj Electricals, Hitachi, Symphony, Voltas, Havels, CGCE

  1. Home Décor & Furnishing – The current tax range in this sector is more than 20% irrespective of the product.
  • Paint companies including chemical companies will surely get most of the benefit after the implementation of the GST.
  • Organized sector will gain a positive momentum as there will be less price disparity between organized and unorganized sector.
  • Various subsidiary manufacturing companies will gain an absolute cost-benefit like – faucets, sanitary ware, laminates, ceramic tiles, laminates

Companies benefited – BASF India, Berger Paints, Asian Paints, Nerolac, H&R Johnson, Kajaria Ceramics, CeraSanitaryware etc.

  1. Logistics – Reduction in transportation lead time, thus enhancing the demand for transport vehicles like trucks, trailers etc.
  • As there will be a lower number of state checkpoints, the transportation time will be reduced.
  • Organized and unorganized sectors will be brought within the same tax structure thus reducing the net Transport cost and competition amongst themselves.

Companies benefited – GATI, Blue Dart, TCI, Snowman Logistics, VRL Logistics

Industries showing rate decrease to the end users are – Cement, Entertainment, Media, Metal,

Industries showing rate increase to the end users are – Textile/Garments, IT &ITeS, Telecom, Banking & Financial Services,

What Are The Ground Level Problems Faced During The Implementation Of The GST?

  • Resistance To Change – Most of the businessmen are reluctant to adopt this change. They are foreseeing irrelevant problems, which are nothing but resistance to change in current methodology.
  • Skilled Workforce– There is a severe lack of trained staff/workers for the actual implementation of GST.
  • Proper Understanding – There is no clear working and in-depth knowledge on the tax evasion side and also dual registration can increase cost.

Here are Few Examples That Will Give The Exact Benefit Details W.R.T. Different Industries

Example of Impact on Auto Industry (Before and After)

Final Product Prior To GST Total Tax & Other Levies After GST Implementation GST 28% Cess 15%
Total Tax Percentage Net 43% Net 43%

Example of Impact on Furniture Industry (Before and After)

Final Product (cost Rs. 20,000/-) Prior To GST Total Tax & Other Levies After GST Implementation GST 12% ITC 6%
2500/- (12.5% Vat) Minus 600/-ITC (6%) 2400/-(12% GST) Minus 2800/-ITC (28% on 10,000)
Total Tax (Above example price) Rs. 1900 Rs. 0

What Is The Current Tax Structure In India?

There are two main types of taxes in India

1. INDIRECT TAXES

  1. Taxes Levied By Center
  2. Service Tax
  3. Excise Duty

iii. CST

  1. Customs Duty (this will not be merged with GST.
  2. b) Taxes Levied By State
  3. VAT
  4. Luxury Tax

iii. Entry Tax

  1. Electricity Duty
  2. Excise on Alcohol
  3. Tax on lottery

vii. Entertainment Tax

viii. Octroi

2. DIRECT TAXES

  1. Taxes Levied By Center
  2. Income Tax
  3. Wealth Tax

Conclusion

Although the actual impact of the new GST is not immediately clear, nevertheless it is projected that the net effect on the entire Indian economy will be positive. Initially, there may be a few hiccups but in due course of time everything will be streamlined. Most people in India have complete faith in Narendra Modi, Prime Minister of India and his vision for the country so public opposition to this tax is expected to be muted. Internationally it is projected that foreign companies would benefit from a uniform tax structure when starting new ventures.