GST
– GOODS AND SERVICE TAX
The
Goods and Services Tax (Amendment) Bill — officially known as, the Constitution
(122nd Amendment) (GST) Bill, 2014 — is believed to be the biggest tax reform
since independence. On Wednesday, 3 August 2016, the Rajya Sabha passed the
bill which was approved by the Lok Sabha in May 2015. it has become
reality 10 years after it was first announced. The Finance Minister Mr. Jaitley
has said he is aiming for an April 2017 rollout of GST. However, the rate and
the scope of GST, a single national tax which replaces multiple indirect taxes, are
yet to be defined.
The
basic philosophy behind GST is to expand the tax base and not to enhance tax
burden on businesses. The Model GST law released by the Ministry of Finance
captures this objective and mentions that any person with an aggregate turnover
of above Rs 10 lakhs would be covered within the ambit of GST. This limit has
been further lowered to Rs 5 lakhs for north eastern states. The significantly
low thresholds are expected to be a game changer for the Small and Medium Enterprises
('SMEs').
GST? Source: business-standard.com
The
Goods and Service Tax (GST) will be a comprehensive nationwide indirect tax on
manufacture, sale and consumption of goods and services throughout India. The
aim is to have one indirect tax for the whole nation, which will make India a
unified common market. GST will be levied and collected at each stage of sale
or purchase of goods or services based on the input tax credit method and would
make not just manufacturing but also the inter-state transportation of goods
more efficient.
How will GST work and what
all will it subsume?
GST
is a single tax on the supply of goods and services, right from the
manufacturer to the consumer. Credits of input taxes paid at each stage will be
available in the subsequent stage of value addition, which makes GST
essentially a tax only on value addition at each stage. The final consumer will
thus bear only the GST charged by the last dealer in the supply chain, with
set-off benefits at all the previous stages.
At the central
level, the following taxes will be subsumed:
Central Excise Duty, Additional Excise Duty, Service Tax, Countervailing Duty,
and Special Additional Duty of Customs.
At the State
level, the following taxes will be subsumed: State
Value Added Tax/Sales Tax, Entertainment Tax, Central Sales Tax, Octroi and
Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and
gambling.
How
will GST be beneficial?
The
introduction of GST would be a significant step in the reform of indirect
taxation in India. Amalgamating several central and state taxes into a single
tax will mitigate cascading or double taxation, facilitating a common national
market. This would be hugely beneficial for consumers as the tax burden on
inter-state logistics will be cheaper. A common tax would mean easy compliance
and uniformity of tax rates and structures for industry and would thus
contribute to ease of doing business by removing cascading costs. For central
and state governments, GST is expected to lead to easier administration and
enforcement. From the consumer point of view, the biggest advantage would be in
terms of a reduction in the overall tax burden on goods.
By
when will it be implemented?
Assuming
the Constitution Amendment Bill does pass in the Monsoon Session, GST will
still not be in force before April 1, 2017. And that is putting it
optimistically. Apart from the legislative process mentioned above, the states,
India Inc, and industries and service providers big and small, will also have
to prepare themselves for a completely new nationwide tax regime.
How
would GST be administered in India?
There
will be two components of GST – Central GST (CGST) and State GST (SGST). Both
Centre and States will simultaneously levy GST across the value chain. Tax will
be levied on every supply of goods and services. Centre would levy and collect
Central Goods and Services Tax (CGST), and States would levy and collect the
State Goods and Services Tax (SGST) on all transactions within a State.
The
input tax credit of CGST would be available for discharging the CGST liability
on the output at each stage. Similarly, the credit of SGST paid on inputs would
be allowed for paying the SGST on output. No cross utilization of credit would
be permitted.
TOP TEN BENEFITS:
1. Life gets
simpler: GST will replace 17 indirect tax levies and
compliance costs will fall.
2.Revenue will
get a boost: Evasion set to drop; Input tax
credit will encourage suppliers to pay taxes; States and Centre will have dual
oversight; The number of tax exempt goods will decline.
3. A common
market: It's currently fragmented along state lines,
pushing costs up 20-30%.
4. Logistics,
Inventory costs will fall: Checks at state borders slow
movement of trucks. In India, they travel 280 km a day compared with 800 km in
the US.
5. Investment
boost: For many capital goods, input tax credit is
not available. Full input tax credit under GST will mean a 12-14% drop in the
cost of capital goods. Expected: A 6% rise in capital goods investment, 2%
overall.
6. Make in India:
Manufacturing
will get more competitive as GST addresses cascading of tax, inter-state tax,
high logistics costs and fragmented market. Increased protection from imports
as GST provides for appropriate countervailing duty.
7. Less developed
states get a lift: The current 2% inter-state levy
means production is kept within a state. Under the GST national market, this
can be dispersed, creating opportunities for others.
8. Manufactured
goods could become cheaper: Lower logistics and tax
costs.
9. GDP Lift:
HSBC estimates an 80 basis point rise in GDP growth over 3-5 years. NCAER pegs
this at 0.9-1.7% thanks to the elimination of tax cascading. That could also
mean more jobs.
10. Freeing up
online: State restrictions and levies have
complicated ecommerce. Some sellers do not even ship to particular states. All
this will end with GST.
IMPACT OF GST :From
Economic Times:http://economictimes.indiatimes.com
GST
will turn India into one common market, leading to greater ease of doing
business and big savings in logistics costs from companies across all sectors.
Some companies will gain more as the GST rate will be lower than the current
tax rates they pay, others will lose as the rate will be higher than the
present effective rate. While the rate of GST is yet to be decided, industry
observers have assumed an 18% rate recommended by a government panel in making
their impact calculations.
The
likely impact across sectors.
TECH
Positive GST will eliminate multiple levies. It will also allow deeper penetration of digital services.
Negative IT companies can have several delivery centres and offices working together to service a single contract. With GST, companies might require each centre to generate a separate invoice to every contracting party. Duty on manufactured goods is going to go up from existing 14-15% to 18%, which means the cost of electronics from mobile phones to laptops- will rise.
Positive GST will eliminate multiple levies. It will also allow deeper penetration of digital services.
Negative IT companies can have several delivery centres and offices working together to service a single contract. With GST, companies might require each centre to generate a separate invoice to every contracting party. Duty on manufactured goods is going to go up from existing 14-15% to 18%, which means the cost of electronics from mobile phones to laptops- will rise.
FMCG
Positive Companies
could generate substantial savings in logistics and distribution costs as the
need for multiple sales depots will be eliminated. FMCG companies pay nearly
24-25% including excise duty, VAT and entry tax. GST at 17-19% could yield
significant reduction in taxes. Warehouse rationalisation and reduction of
overall tax rates, is expected to generate saving which could cumulatively
range between 200-300bps. Key beneficiaries : Hindustan Unilever,
Colgate, GSK, Asian Paints
Negative If the recommended 40% "sin/demerit" GST for aerated beverages and tobacco products is levied, then prices may increase by over 20%. Food companies: many see increase in effective tax as many companies enjoy concessional rate of excise.
ECOMMERCE
Positive GST will help create a single unified market across India and allow free movement and supply of goods in every part of the country. It will also eliminate the cascading effect of taxes on customers which will bring efficiency in product costs.
Negative The tax collection at source (TCS) guidelines in the GST regime will increase administration, documentation workload for ecommerce firms and push up costs.
TELECOM
Positive Handset prices likely to come down/even out across states. Manufacturers are also likely to pass on to consumers cost benefits they will get from consolidating their warehouses and efficiently managing inventory. For handset makers, GST will bring in ease of doing business as they may no longer need to set up state specific entities and transfer stocks to them and invest heavily into logistics of creating warehouses in each state across the country.
Negative If the recommended 40% "sin/demerit" GST for aerated beverages and tobacco products is levied, then prices may increase by over 20%. Food companies: many see increase in effective tax as many companies enjoy concessional rate of excise.
ECOMMERCE
Positive GST will help create a single unified market across India and allow free movement and supply of goods in every part of the country. It will also eliminate the cascading effect of taxes on customers which will bring efficiency in product costs.
Negative The tax collection at source (TCS) guidelines in the GST regime will increase administration, documentation workload for ecommerce firms and push up costs.
TELECOM
Positive Handset prices likely to come down/even out across states. Manufacturers are also likely to pass on to consumers cost benefits they will get from consolidating their warehouses and efficiently managing inventory. For handset makers, GST will bring in ease of doing business as they may no longer need to set up state specific entities and transfer stocks to them and invest heavily into logistics of creating warehouses in each state across the country.
Negative Call
charges, data rates will go up if tax rate in the GST regime exceeds 15%. Tower
firms won't be able to set off their input duty liabilities if petro-products
continue to stay outside GST framework. Negative for Bharti Airtel, Idea and
Reliance Comm.
AUTOMOBILES
Positive On-road price of vehicles could drop by 8%, as per a report by Motilal Oswal Securities. Lower prices can be construed as indirect stimulus to boost volumes. Key beneficiaries: Maruti Suzuki, M&M; Eicher Motors' margins may expand.
Negative Demand for commercial vehicles may be hit in the medium term. GST will subsume local taxes, reduce time at check-posts, ease logistics hurdles. With fleet productivity increasing, operators may not feel the need to expand mid-term.
Positive On-road price of vehicles could drop by 8%, as per a report by Motilal Oswal Securities. Lower prices can be construed as indirect stimulus to boost volumes. Key beneficiaries: Maruti Suzuki, M&M; Eicher Motors' margins may expand.
Negative Demand for commercial vehicles may be hit in the medium term. GST will subsume local taxes, reduce time at check-posts, ease logistics hurdles. With fleet productivity increasing, operators may not feel the need to expand mid-term.
MEDIA
Positive DTH, film producers and multiplex players are levied service tax as well as entertainment tax, GST will bring major change and uniformity in businesses. Taxes could go down by 2-4%. Multiplex chains will save on revenues as there will be a more uniform tax, unlike current high rate of entertainment tax levied by different states. It may lower the average ticket price, and increase the footfalls in multiplexes.
GST will be a big boon to film producers and studios that currently pay service tax on most of their cost, but cannot charge input credit on creative services (payments to artists etc) as they fall under the negative list. Under GST, they will be able to claim credit of these services also, which will help is lowering the overall cost.
Key beneficiaries : Dish TV, PVR.
Positive DTH, film producers and multiplex players are levied service tax as well as entertainment tax, GST will bring major change and uniformity in businesses. Taxes could go down by 2-4%. Multiplex chains will save on revenues as there will be a more uniform tax, unlike current high rate of entertainment tax levied by different states. It may lower the average ticket price, and increase the footfalls in multiplexes.
GST will be a big boon to film producers and studios that currently pay service tax on most of their cost, but cannot charge input credit on creative services (payments to artists etc) as they fall under the negative list. Under GST, they will be able to claim credit of these services also, which will help is lowering the overall cost.
Key beneficiaries : Dish TV, PVR.
INSURANCE
Negative Insurance policies: life, health and motor will begin to cost more from April 2017 as taxes will go up by up to 300 basis points.
AIRLINES
Negative Flying to become expensive, as service tax will be replaced by GST. Service tax on fares currently range between 6% and 9% (depending on the class of travel). With GST, the rate will surpass 15%, if not 18%, effectively doubling the tax rate.
CEMENT
Positive The effective rate of tax for cement companies is now 25%. If GST rates are fixed at 18-20% then the overall tax incidence will be lower GST IS expected to lead to savings in transportation cost, which currently comprises up to 20-25% of total revenue. One common market will bring down the number of depots in the country. Ultratech states that its depots will come down to 100 from 550 at present.
Key beneficiaries : Pan India players such as UltraTech, ACC, Ambuja and Shree Cement.
Negative Insurance policies: life, health and motor will begin to cost more from April 2017 as taxes will go up by up to 300 basis points.
AIRLINES
Negative Flying to become expensive, as service tax will be replaced by GST. Service tax on fares currently range between 6% and 9% (depending on the class of travel). With GST, the rate will surpass 15%, if not 18%, effectively doubling the tax rate.
CEMENT
Positive The effective rate of tax for cement companies is now 25%. If GST rates are fixed at 18-20% then the overall tax incidence will be lower GST IS expected to lead to savings in transportation cost, which currently comprises up to 20-25% of total revenue. One common market will bring down the number of depots in the country. Ultratech states that its depots will come down to 100 from 550 at present.
Key beneficiaries : Pan India players such as UltraTech, ACC, Ambuja and Shree Cement.
For a simple
video on what GST means:
More on what is
GST:
For more
information on impact of GST:
For a snapshot on
how the bill is likely to impact various sectors and stocks visit
On GST the next
steps:
There is also gstindia.com
