GST- One country, One tax
Indian taxing system is cluttered with a number of taxes namely Central Excise Duty, Service Tax, Countervailing Duty, Special Countervailing Duty, Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entertainment Tax, Entry Tax, Purchase Tax, Luxury Tax, Advertisement taxes and Taxes applicable on lotteries. Goods and services tax (GST) is one tax which will get rid of all these numerous taxes. It is assumed that GST will be rolled out after 1St July 2017.
The Goods and services tax will alleviate the problems like double taxation i.e. when once tax is paid like say excise duty then there are several other taxes levied on it until it reaches the final consumer which may include CST, VAT etc. the business man has to calculate various taxes for just importing the goods to its factory like custom duty then Octroi etc. all of this will now come under one tax and taxing process will be streamlined. GST is being hailed as the game changer for India’s economy and is said to be the biggest change in the constitution since the country’s independence.
GST will be calculated on value creation thus removing cascading effect and it will also be difficult for the black money holders to participate in value chain as GST will keep track of all the transactions. GST is estimated to provide the GDP of country a boost of 0.9%-1.4% straight away.
The meeting held at Srinagar has cleared the way for early implementation of GST as the government has decided the tax to be levied on 2000 goods and 500 services and government of 12 states has already passed there sGST legislations making them eligible to levy tax on services and others will also soon accept it.
THE IMPACTS ON DIFFERENT SECTORS ARE AS FOLLOWS-
- Automobile sector
All automobiles will attract the rate of 28% as opposed to current CST of 28-31% and tractor will attract the rate of 12%. The rate for luxury cars may fall from 55% to 43% and the tax on SUV’s will also drop 6-10%. This companies whose stocks will be affected the most are Maruti, Eicher motors, Hero moto, bajaj Auto and tvs motors.
- Tobacco and liquor industry
Liquor for human consumption is exempted from GST however tobacco and tobacco products will fall under GST and there will be increase in the tax burden as GST rate on tobacco will be higher as compared to current duties thus, cigarettes prices may go up.
- White goods
Air conditioners, washing machine, refrigerators, sanitary hardware, tiles and faucets can attract higher tax rate.
- Telecom and financial services
GST for telecom sector is set higher at 18% as compared to 15% previously. However, these sectors will get substantial benefits for input credit given the eligibility of credit on the goods, which was not present under the current regime.
- Fast moving consumer goods sector
The daily use goods like soap, toothpaste, hair oil etc. are in a lower bracket of 18% thus they will be cheaper but the other premium goods like chocolate, ice cream, hair creams, instant coffee etc. are placed in a higher bracket that from 24% it will rise to 28% making them more expensive. With the new rate structure there were to many goods that were kept in the higher tax bracket. It is said to have a marginally negative impact in Indian FMCG giants like HUL, Godrej, Emami ltd etc.
Short term impact of GST
The GST will boost inflation in short term. The GST rate starts from 5% to 28% taxation services such as movie theatres and various restaurants will have to increase prices. The petroleum and liquor products are not included in GST even though they are big sources of tax revenue for government of India. This may be a move of few capitalist who need time to funnel away there black money.
What do owners of some renowned business have to say?
As per nationwide poll of top CEO’s, GST is estimated to increase the economic pace of the country and will help in reducing the inflation rate. It will result in bringing immense fortune to corporate India. The GST rates have exempted several food products from the tax along with health and education sector and it has also kept a majority of items which are very essential in day to day life in tax slab of less than 5% and for the final consumers there is an anti-profiteering clause, which requires firms to pass on the benefit of input credit or tax reduction to the end consumer by a commensurate reduction in prices.
Industry believes that unified GST is a prerequisite for a modern developed economy as India is being taking big leaps in global commercial and economic space bringing GST is inevitable. There will be some problems of short term inflation a tax burden on companies but these will be eventually compensated as there will be gains from transparency, better tax credit systems, and ease of administration. It is certainly a progressive tax reform and industry is for it
To make GST a big success there should be proper clarity provided to business houses on various parts like what will be the tax slabs and what industries in what sector are exempted for e.g. health sector is exempted but there are still certain pharmaceutical products which are under the tax slabs.
Citizens and government are both ready for the July 2017 roll out of GST well it surely shows seems like a game changer as it will widen the tax paying population bring in more transparency and will remove the clutter out of the Indian taxation system. However, just like there are two sides to a coin GST don’t have all the positives to it but some negatives to like short term inflation and certain goods like premium FMCG goods and cars they will become expensive but in the end the result will come out.
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