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Goods and services Tax (GST), hailed as the biggest tax reform since independence is one indirect tax for
the whole nation, which has unified the country into one tax regime. Rolled out in the country on 1 st July
2017, the various tax rates as decided by the GST Council are 0%, 5%, 12%, 18% and 28%. The real value
of GST will be in the area of tax governance, where a system plagued with plethora of discretionary, ad-
hoc taxes has and will move towards a rule-based, transparent and stable tax regime and a single tax is
applicable on the supply of goods and services, right from the manufacturer to the consumer.
How will GST work?
GST has been divided into three components the Central Goods and Services Tax(CGST), State Goods and
Services Tax (SGST), Inter State GST. The CSGT will subsume the Central indirect taxes like the service tax,
excise duty, additional customs duty, and additional special excise duty whereas SGST will subsume the
State indirect taxes like VAT, entertainment tax, octroi and others. The CGST will be levied by the Central
Govt whereas the SGST will be charged by the state government. In the case of an interstate sales
transactions, IGST will be collected by the Central Government. GST will allow the Input tax credit for the
taxes paid on the purchase of goods and services during a commercial activity and input tax credit of
CGST and SGST will be provided by the respective governments.
Impact on few key sectors
Media/Telecom Service tax on DTH companies- GST rate for cable and DTH services
15%. Entertainment tax charged fixed at 18%
by states on media-7% (weighted Telecom services will be taxed at 18%
average for Dish TV) now. There was already pressure due
Service Tax on telecom services to entry of JIO and now increased tax
15% rates has aggravated the condition.
Pharmaceutical Industry
I. Most of the drugs under the 5% bracket are used to cure malaria, HIV-AIDS, tuberculosis, and
diabetes were previously charged VAT around 4%
II. With the roll out of GST, the cost of insurance, pharmaceuticals, and international travel together
with quality health care is expected to reduce which would culminate into better prospects of
medical tourism in the country
Cement Industry
I. Cement and housing segment will be taxed at 28% which were earlier taxed around 27-31%
III. Tax incidence on cement, highest in Asia Pacific, has affected the health of the industry that is
witnessing only 70 per cent of capacity utilization due to low demand.
The bigger impact of GST for the sector would be in the form of lower freight cost due to efficient
movement of fleet and ease of cross border movement of goods.
Key Takeaways:-
The GST in its current form has five rates. It is very likely this has led to cases of inverted taxation.
The tax on inputs is higher than the tax on output. There is even an outside chance that such
inverted taxation could lead to the rather absurd situation where the government will have to pay
companies to produce. The principle of a destination-based tax is blown away when there are
embedded input taxes.
The imperfect GST that India now has is still superior to the inefficient indirect tax system that it has
replaced. But two things need to be done now:-
I. The first is that the complexity of the GST structure right now, as well as its novelty, will
mean that companies will take time to figure out their tax liabilities. The government would
do well to give taxpayers the benefit of doubt in the first few months.
II. The longer-term issue is streamlining the GST structure. Purists may demand a single-rate
GST, but a more viable option is to move to a three-rate structure0% on items of mass
consumption, 12% on most goods and services, and 28% on sin goods such as cigarettes.
According to a report by IMF, with the launch of GST the medium-term growth of India will be above
8% as it will enhance production and the movement of goods and services across Indian states.
Conclusion
As tax rates on mass consumption items descends activating inflation downtrend, economic
development will be reinforced and bolster the main concerns of firms. This will eventually lead to
upliftment for the market as profit will show signs of improvement.
Therefore, GST will play an instrumental role on the economy through its impact on both efficiency and
equity. It will impact the international trade, firms and the consumers on a wide scale. Thus, one must be
ready to deal with GST and many other changes that are going to come following its implementation.
Eventually, India shall move to join the world wide standards in taxation, corporate laws and managerial
practices and be among the leaders in these fields.