GST – Analysis & Opinions

GST is purported to bring in the ‘one nation one tax’ system, but its effect on various industries will be slightly different. The first level of differentiation will come in depending on whether the industry deals with manufacturing, distributing and retailing or is providing a service.

Impact of GST on Manufacturers, Distributor and Retailers

GST is expected to boost competitiveness and performance in India’s manufacturing sector. Declining exports and high infrastructure spending are just some of the concerns of this sector. Multiple indirect taxes have also increased the administrative costs for manufacturers and distributors and it is being hoped that with GST in place, the compliance burden will ease and this sector will grow more strongly.

Impact of GST on Service Providers

As of March 2014, there were 12, 76,861 service tax assessees in the country out of which only the top 50 paid more than 50% of the tax collected nationwide. Most of the tax burden is borne by domains such as IT services, telecommunication services, Insurance industry, business support services, Banking and Financial services etc. These pan-India businesses already work in a unified market, and while they will see compliance burden becoming lesser there will apparently not be much change in the way they function even after GST implementation.

Sector wise impact analysis:

In a vast country like India, the logistics sector forms the backbone of the economy. We can fairly assume that a well organized and mature logistics industry has the potential to leapfrog the “Make In India” initiative of the Government of India to its desired position.

The e-com sector in India has been growing by leaps and bounds. In many ways, GST will help the e-com sector’s continued growth but the long-term effects will be particularly interesting because the model GST law specifically proposes a tax collection at source (TCS) mechanism, which e-com companies are not too happy with. The current rate of TCS is at 1% and it’ll remain to be seen if it dilutes the rapid boom in this sector in any way in the future.

  • Pharma

On the whole, GST is expected to benefit the pharma and healthcare industries. It will create a level playing field for generic drug makers, boost medical tourism and simplify the tax structure. If there is any concern whatsoever, then it relates to the pricing structure (as per latest news). The pharma sector is hoping for a tax respite as it will make affordable healthcare easier to access by all.

  • Telecommunications

In the telecom sector, prices are expected to come down after GST. Manufacturers will save on costs through efficient management of inventory and by consolidating their warehouses. Handset manufacturers will find it easier to sell their equipment as GST will negate the need to set up state-specific entities, and transfer stocks. The will also save up on logistics costs.

The Indian textile industry provides employment to a large number of skilled and unskilled workers in the country. It contributes about 10% of the total annual export, and this value is likely to increase under GST. GST would affect the cotton value chain of the textile industry which is chosen by most small medium enterprises as it currently attracts zero central excise duty (under optional route).

The real estate sector is one of the most pivotal sectors of the Indian economy, playing an important role in employment generation in India.The probable impact of GST on the real estate sector cannot be fully assessed as it largely depends on the tax rates. However, it is a given that the sector will see substantial benefits from GST implementation, as it will bring to the industry much required transparency and accountability.

Agricultural sector is the largest contributing sector the overall Indian GDP. It covers around 16% of Indian GDP. One of the major issues faced by the agricultural sector, is transportation of agri products across state lines all over India. It is highly probable that GST will resolve the issue of transportation. GST may provide India with its first National Market for the agricultural goods. However, there are a lot of clarifications which need to be provided for rates for agricultural products.

  • FMCG

The FMCG sector could see significant savings in logistics and distribution costs as the GST will eliminate the need for multiple sales depots. The GST rate for this sector is expected to be around 17% which is way lesser than the 24-25% tax rate paid currently by FMCG companies. This includes excise duty, VAT and entry tax – all of which will be subsumed by GST.

  • Freelancers

Freelancing in India is still a nascent industry and the rules and regulations for this chaotic industry are still up in the air. But with GST, it will become much easier for freelancers to file their taxes as they can easily do it online. They will be taxed as service providers, and the new tax structure will bring about coherence and accountability in this sector.

The automobile industry in India is a vast business producing a large number of cars annually, fueled mostly by the huge population of the country. Under the current tax system, there are several taxes applicable on this sector like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty which will be subsumed by GST. Though there is still some ambiguity due to tax rates and incentives/exemptions provided by different states to the manufacturers/dealers for manufacturing car/bus/bike, the future of the industry looks rosy.

With increased limits for registration, a DIY compliance model, tax credit on purchases, and a free flow of goods and services, the GST regime truly augurs well for the Indian startup scene. Currently, many Indian states have very different VAT laws which can be confusing for companies that have a pan-India presence, specially the e-com sector. All of this is expected to change under GST with the only sore point being the reduction in the excise limit.

Among the services provided by Banks and NBFCs, financial services such as fund based, fee-based and insurance services will see major shifts from the current scenario. Owing to the nature and volume of operations provided by banks and NBFC vis a vis lease transactions, hire purchase, related to actionable claims, fund and non-fund based services etc., GST compliance will be quite difficult to implement in these sectors.

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  1. Lok Sabha has passed the 4 GST bills with certain amendments. Click here for a list of the major GST amendments proposed in the bills.
  2. It is mandatory to pass on the benefit due to reduction in rate of tax or from input tax credit to the consumer as an anti-profiteering measure. Read More
  3. Under the current law, wholesalers and retailers escape the tax liability as there is no mechanism to trace it, but this will change under GST. Read more
  4. While all the businesses are now preparing to set up the infrastructure for GST implementation, Income Tax department is gearing up to surprise them all.
  5. Freelancers under GST providing taxable services will need to get registered (if exceeding the exemption limit) and pay tax on the services provided.
  6. GST law allows principal to send taxable goods, without payment of tax, to a job worker. There can be further movement of such goods from one job worker to another.
  7. GST Impact on FMCG sector is likely to be beneficial to both the industry and the end consumers. Read here to find out more.
  8. GST has defined works contract as a contract where transfer of property in goods is involved in the execution of such contract.
  9. GST impact on automobile industry is positive but threre is ambiguity in rates.GST would help in creating a better competitive market.
  10. The positives and negatives of the GST compliance processes on SMEs.
  11. An analysis of how the GST will affect ecommerce companies and operators.
  12. An analysis of how GST will impact the logistics industry.
  13. An analysis of how GST will impact the food services and restaurant business.
  14. GST will streamline the real estate sector and provide a reduction in cost for the developer. GST is expected to reduce the cost of Residential houses.
  15. Online marketplace operators have already completed the impact analysis of GST on their operations. Marketplace sellers are still unaware of these rules. Need of the hour is to be aware of applicable GST provisions.
  16. Worried about Transitional Provision as a Job Worker under Goods and Services Tax? Find out here to be GST Ready
  17. Having doubts on Import Provisions under Goods and Services Tax? Read hear to understand how GST will Impact Imports in India
  18. A special economic zone (SEZ) is a dedicated zone wherein businesses enjoy simpler tax and legal compliance. Here we are drawing implication of GST on Units Operating in Special Economic Zones (SEZ) in India
  19. Continuing our discussion further, we are now analyzing the implications, that GST has brought along on units operating in SEZs.
  20. The impact of GST on Banks and NBFCs will be such that operations, transactions, accounting and compliance will all together be needed to reconsidered.
  21. Impact on Stock transfer under GST, Related Valuation Rules, meaning of Supply, Free Supplies
  22. Startups especially will enjoy the benefits of GST such as much simpler taxation, higher threshold. Read on for the impact of gst on startups
  23. Impact of gst on agricultural sector would be benefical in the long run. GST would help the farmers to get a better price for their product.
  24. Most of the business activities redefined under GST.Every business needs to assess its policies, strategy, process in order to be competitive in the post GST market.
  25. The abolition of Research and Development Cess under GST would lower down the cost related to taxes, compliance and import of technology.