GST – Sector wise Grins and Frowns

Tax Benefits

The king should take wealth from his subjects at the proper time like an intelligent man milking his cow every day, the king should milk his kingdom every day. As the bee collects honey from flowers gradually, the king should draw wealth gradually from his kingdom for storing it,” is how Bhishma counsels Yudhishthira. Now all democratic governments are concentrating on these lines and GST is one such outcome with a view bring a consolidated tax based on a uniform rate of tax fixed for both goods and services and it is payable at the final point of consumption.

A brief on GST

Goods Service Tax (GST) is a national wide single domain indirect tax system with an aim to consolidate indirect taxes on goods and services and to bring uniformity in tax rates. It is divided into State Goods and Services Tax (SGST) and Central Goods and Services Tax (CGST) and IGST (Integrated Goods and Services Tax). GST levied on transaction value and payable at the final point of consumption.

NCAER- Study- A basis

According to a study by the National Council of Applied Economic Research (NCAER), full implementation of the GST could expand India’s growth of gross domestic product by 0.9-1.7 percentage points. By removing the system of multiple Central and State taxes, the GST can help in reducing taxation and filing costs and expand business profitability, thereby attracting investments and promoting GDP growth. Simplification of tax norms can help in improving tax compliance and increasing tax revenues.

Prior GST targets and opinions

With target of 25% contribution of manufacturing sector to national GDP, the make in India vision is roaring. The current contribution is around 15% only. A transformation of India into a global manufacturing hub is also an intention which rally round in employment generation, FDI etc. the government of India has identified 25 priority sectors that shall be promoted adequately like automobile sector.
           
The comprehensive tax regime – aimed at replacing central excise, VAT, entertainment tax, octroi and purchase tax on goods and services – is expected to boost the country’s economic growth up to 2% by removing restrictions at state level on various transactions. The basic idea of GST is to remove tax hurdles and bring more transparency in taxation system. India chief executives say goods and services tax (GST) will create a pan-Indian common market and eliminate the cascading effect of taxes on indigenous manufacture of goods and services. To get ready for GST, the service tax rate was increased from 12.36 per cent to 14 per cent by the finance minister, and the negative list of services was pruned. Education cess was integrated in the excise and service tax rates. In the process, all services are to become more expensive.

Approaching roads for GST 

Firstly, an integrated approach
In the GST system, when all the taxes are integrated, it would make possible the taxation burden to be split equitably between manufacturing and services. There is interlink between production and distribution of goods, services. Separate taxes for goods and services, which is the present taxation system, requires division of transaction values into value of goods and services for taxation, leading to greater complications, administration, including compliance costs. GST will be levied only at the final destination of consumption based on VAT principle and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about development of a common national market, which is the fore most target of make in India approach.

Secondly, a hostile approach 
It will also help to build a transparent and corruption-free tax administration. Presently, a tax is levied on when a finished product moves out from a factory, which is paid by the manufacturer, and it is again levied at the retail outlet when sold. This kind of situation is very vital for the success of Make in India policy.

 

Thirdly, economic development
According to experts, by implementing the GST, India will gain $15 billion a year. This is because; it will promote more exports, create more employment opportunities and boost growth. It will divide the burden of tax between manufacturing and services. As discussed earlier generating employment and economic development are the intentions of Make In India, certainly GST adds fuel to the fire

GST- A cost reduction measure
In the GST system, taxes for both Centre and State will be collected at the point of sale. Both will be charged on the manufacturing cost. Individuals will be benefited by this as prices are likely to come down and lower prices mean more consumption, and more consumption means more production, thereby helping in the growth of the companies.

A Sector wise pilot view

Manufacturing Sector

GRINS FROWNS
  • Boosted competitiveness
  • Simplified valuation system (Transaction based valuation)
  • Avoided multiple taxes or cascade tax effects
  • Simplified and solitary registration
  • Tax evasion arrested
  • Customer delight approach with an efficient supply chain system
  • Many technical hiccups in GSTN
  • Working Capital burdens increased due to tax on stock transfers and advances
  • Cost of GST implementation became a prime concern as techno savvy staff required
  • Exemptions in area-based incentives became remote.

Banking (A service sector)

GRINS FROWNS
  • Practically credit can be utilized
  • Ease in doing business
  • Lead to digitization
  • Reduction of transactions
  • Addition demand for working capital and funds
  • Tax increased from 15 % to 18%
  • Financial transaction costs increased
  • Increased complexity in tax compliance
  • Many hurdles like input tax credit, register for their all office location, RCM etc

Telecommunication

GRINS FROWNS
  • The unlimited schemes and inviting call plans are expected to bring some relief to the consumers
  • Tax increased from 15 % to 18%
  • Lower Input tax credit as petrol products are not covered under GST. (Power generators are used for towers etc)
  • Increased tax compliance
  • Non-alignment of GST provisions and TRAI provisions
  • Multi state circles became taxable
  • Variance in prices due to variance in the place of supply

Real Estate

GRINS FROWNS
  • Multiple taxes like VAT, Works tax were avoided
  • Buyers are benefited much
  • Taxes reduced much, thus developers are benefited by a marginal profit improvement
  • Lack of transparency
  • Unorganized transactions are much in this sector
  • RCM adversely affected developers
  • Many conditions in claiming input credit

Note: No change in stamp duties 

Other Sectors
In the Agricultural Sector one of the major issues is the transportation of Agri-Products across states and GST is in a positive note to solve this. The FMCG Sector is improved in margins through savings in logistics and distribution costs as the GST has eliminated the need for multiple sales depots. Freelancing in India is still a budding industry and the rules and regulations for this confused industry are still up in the air. GST will ease these hurdles. They are taxed as service providers, and the new tax structure has brought about coherence and accountability in this sector. The Automobile Industry which is very vast in our country is benefited by avoiding various taxes like VAT etc

Conclusion:  A painless treatment required.  As referred in starting lines, the cows are to be milked without cutting the udders. GST frame work may operate ‘Make in India’ with an anesthesia of removing multi stage tax system. Presently we can say that there is a bit of gambling on GST and its effect on Make in India campaign. We have to wait to see the show whether it is going to be a big hit or not.  This is all because there are no clear roads on GST till date and State governments are in a confusion stage regarding the revenue portions. With in no time the GST going to strike Indian market. We, the CMAs, as cost warriors, must be equipped with the knowledge on GST to a maximum extent possible. The Make in India will certainly roar if proper measures are taken on basis of present economic scenario and GST supports it to stand in the front line in world taxation standards and managerial practices. But we cannot firmly say that the Make in India will steal the show with the help of GST because it is too remote to get a Mr. Perfect GST. This is because Central as well as state governments should come into parallel lines. This kind of structure is very new to the world. While framing the rules, one should take care of the fundamental tax principles. We cannot keep high expectations either of GST or Make In India or both. We have seen whether our Lion will be restricted to just a roar or it flies like Chinese Dragon and blew a fire of economic prosperity.

Dr. CMA V.V.V. Phani Kumar
Manager (F&A) – Rashtriya Ispat Nigam Limited (RINL)

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