Important Topics: Goods & Service Tax (GST) on Indian Economy
In order to make India a manufacturing hub, as it will create employment for burgeoning youth, it is imperative that the foreign investors / companies find the environment to be conducive here.
- But major impediment to this is, uncertain & unpredictable indirect tax regime.
- To address this, constitution amendment bill for Goods & Service Tax (GST) has been approved and will be implemented from April 2017 which is going to replace all multi staged taxes by centre & state giving birth to unified tax structure.
GST – the most significant tax reform since independence for India [which is now also a Asia's third largest economy] will benefit in:
(a) Real Estate Sector
- Construction – the second largest employer after agriculture, constituting 7.4% of India's GDP in 2013-14.
- But under current indirect tax regime the industry has been embroiled in dispute and various types of taxes are involved from construction to sale to property – for example Service tax, Value Added Tax (VAT), Stamp Duty, Building cess on Construction etc.- Which leads to cascading of taxes and higher cost burden on house purchasers.
- The proposed GST regime law would subsume many indirect tax law and this will benefit the sector like cement & steel further reducing the construction cost.
- Also it will result in transparency in real estate sector which will reduce tax evasion through more efficient transaction & tracking methods.
(b) Health Care Sector
- One of the major concerns of this industry is the current inverted duty structure which affects domestic manufacturing making input cost higher than output cost, therefore discouraging investment.
- GST may either remove inverted duty structure or allow refund of accumulated credit and this will act as a growth catalyst for this sector.
- Since 8 different taxes are levied in pharmaceutical industry, GST would help simplifying it and shed positive impact on industry.
- GST will also result in operational efficiency by streamlining the supply chain which will add 2% to India's pharmaceutical market size.
- All this will eventually help consumers by making health case & medicines affordable which is already a big goal for government.
(c) Banking & financial services sector
The banking and financial services in India are taxed at 14.5% service tax while GST is expected to be 18-20%. Therefore, making these services costlier. Also GST is a destination based tax, it might be challenge to determine the destination of certain services which may lead to difficulty in determining state GST, central GST or interstate GST on B2B and B2C transaction. B2C and B2B are 2 forms of commercial transactions which means Business to consumer and business to business transaction respectively.
(d) Travel, Tourism & Hospitality
This industry has multiple taxes levied by both center and state and it is expected that under GST, supplies to hotel and restaurants will be subjected to a single tax.
- R&D cess, payable on franchise fees and technical know-how, is likely to be subsumed under GST thus simplifying compliance procedures and reducing multiple taxes.
- At the moment in India hotels currently levy taxes in range of 20% compared with just 2-5% average range across globe making travelling higher.
- Therefore on the whole GST will reduce cascading effects & lack of credits therefore, cheaper hotel prices for consumers.
(e) Education Sector
- Education of country's youth will decide how the economy will flourish, helping in advancement of country.
- In India, Education is provided by both public & private sector and the priority has always been low cost education to one & all and thus this sector enjoys lot of tax exemption which is likely to continue even after GST implementation.
- In case if it doesn't then the sector can avail input credit or CENVAT credit on the duty paid on purchase of inputs & services – thus, overall it is likely to bring the final cost down for industry.
(e) Impact on Common Man
- Goods today are taxed at 12.5% (excise duty) & plus 5-15% (VAT) which are passed to end consumer making it costlier. GST capped at 18%, price of goods can be significantly reduced for consumers.
- Eating out could be cheaper as right now we pay service tax +VAT both. Leading to 18.5% tax whereas GST will cost single tax of 18%.
- Phone bills to get costlier as states are expected to decide service tax. Also service consumed by common man like transportation, railways, banking, air travel etc. may become expensive.
- Buying car and LED's to get cheaper. For example- at present for Rs. 20,000 LED TV we pay 24.5% tax making it 24,900. In GST regime 18% tax making it 23,600.00.
- Online buying of bags,shoes,electronics will be costlier as e-commerce industry comes into a tax net &will have to pay tax deducted at source for every purchase from its sellers.
Conclusion: After going through sectorial impact of GST, one can assess that GST could be a game changer and beneficial not only to common man but also to economy as a whole converting India to a unified national market with simplified tan regime.
POSSIBLE QUESTION FROM EXAM POINT OF VIEW
GST will have a far reaching impact on almost all the sectors in Indian economy, therefore described as a reform measure of unparalleled importance in independent India. In this content discuss the major sectors and impact of GST on them (200 words).