Overall impact of GST will be positive on startup business, automobile sector, tourism industry, FMCG sector, media & entertainment industry while negative in case of hospitality, alcoholic products as well as e-commerce sector.
By Neha Rani and Sunil
Maharshi Dayanand University, Rohtak, India
Impact of GST on Startup Business
1. Every new business has to be registered in sales tax department for VAT by following different procedure with a fee in a different state for registration.Under GST, a simplified uniform process and centralized registration will be required for starting a business in different states.
2. Under GST, new businesses have to be registered if turnover is more than 10 lakhs (5 lakhs in case of existing VAT system) and business will be taxed at a lower rate for turnover between 10 and 50 lakhs.
3. Today startup business has to spend a lot of time and energy in managing various taxes according to different regulation in different states. GST will be a substitute for all indirect taxes levied by state and central government.
4. Now businesses that pay both sales and service tax like restaurants will get benefit from GST due to taxation on all once.
5. For manufacturers, logistic cost and time across states will be reduced due to tax neutrality in interstate supply which will increase competitiveness in the industry.
6. Now registration, returns, and payments will be online due to IT system so startup can easily follow rules.
7. Due to GST, the hidden cost of doing business will be reduced by minimizing cascading of taxes due to the availability of input tax credit throughout the value chain and across boundaries of the state.
8. The cost of manufacturing goods & services will be reduced due to phasing out of CST, subsuming of center& state tax in GST and reduction in compliance cost which will make our goods and services competitive in international market.
Impact of GST on Automobiles Sector
1. Currently, tax revenue of Indian government from automobile sector is 30-47% but after GST, it will be in the range of 20-22 percent. The cost of vehicles will also drop by 8-19 percent for end users. The reason is that imported distributor, as well as domestic resellers, can save input tax credit on inputs paid under GST.
2. Organized battery and other spares would become more cost effective and gain market share. (Wadhwa, 2016)
3. Because of easily surpassing of various octroi and checkpoints, now goods can be transferred from one state to another and transportation cost will be reduced.
Doubts:
1. Ambiguity regarding GST rates for different segments like small, mid and luxury car segment and criteria for defining these segments.
2. Clarity regarding incentives provided to different automakers by the state government in the form of VAT/CST linked subsidies and/or deferment of taxes.
3. Clarity regarding treatment of used car sales under GST.
Impact of GST on Hospitality and Tourism Industry
GST can be proved as a game changer for the tourism industry. Now multiple taxes have been levied by center and state. So under GST:
1. Supplies of hotels and restaurants will be taxed at single rate.
2. Input tax credit will be available on services related to renovation or construction of hotels and resorts.
3. Different taxes like R&D less payable on franchise fees and technical know- how will be subsumed under GST.
Doubt:
1. Existing benefits under foreign trade policy will be availed or not.
Impact of GST on Healthcare
1. Due to inverted duty structure, the cost of domestic manufacturers is high which can be reduced by removing inverted duty structure and refund of accumulated credit under GST.
2. Indirect tax paid by Pharma companies could be increased for service oriented industries like health, insurance, and diagnostic centers.
3. Various Exemptions and benefits/ incentives are availed according to location wise which will be provided up to the expiry of the period.
Impact of GST on FMCG Sector
1. GST will be beneficial for some companies like Havells, Blue Star, HUL, Emami, Godrej consumer. Around 3000 crore FMCG industries in India is the major contributor to the state revenue approx. 40,000 crore Food & Beverage and household & personal care are major FMCG industries currently. Tax at 27% (12.5% excise and VAT at 12 to 14.5% on top of excise) was paid by FMCG industries. After subsuming all GST rates, GST rate will be in range 17-20% which will benefit this sector.
2. Now mostly companies establish warehouse in each state to avoid CST on interstate sales. Warehouses opened from tax point rather than market proximity and transport considerations. Under GST, India is emerged as a single largest common market so local and interstate supply would be neutral so companies will be in beneficial position due to savings in warehousing and distribution cost.
3. FMCG distributors and retailers can set off input tax credit from services such as transport, rent against GST tax liability which is not available currently.
Doubts:
1. Some companies are enjoying tax incentives or exemptions according to current taxation system so GST effect can be negative on them.
2. Job work performance and stock transfers currently not taxed are likely to be taxed and will affect product outlay.
3. Some FMCG companies import raw materials but it will attract IGST so it will be costly against local products.
4. Beverages and tobacco products will be negatively affected due to taxation at the higher rate approximately 40% under GST.
Impact on E-Commerce
1. Up to now, many indirect taxes like VAT, excise duty, CST and service tax by categorizing offering goods and services while some offerings like digital downloads including software, music, e-books cannot be categorized into goods & services so to decide VAT/CST or service tax will be charged is a challenge.By GST, the single tax will be charged across the country. All goods & services will be taxed at the single rate so no problem of categorizing.
2. Issues related to interstate movement of goods and services like entry taxes with the requirement of statutory form, way bills, road permits, and local registration will be resolved under GST.
3. Reduction in cost due to the elimination of the cascading effect of taxes on prices.
Negative Impact:
1. Now the tax will be collected at source and it is the duty of e-commerce firms to file monthly and annual returns and collect tax on supplies of goods & services made by supplier so TCS guideline in the GST will increase workload and cost for e-commerce firms.
2. As small scale business are exempted up to 10 lacs but under GST, E-Commerce firms have to collect tax on every transaction whether relates to small scale. So firstly small firms have to pay tax then they apply for refund impacting negatively the working capital of small firms.
3. Tax Collected at Source (TCS) will affect negatively for goods sold for cash on delivery and later be rejected because firms have to bear tax from their own capital then apply for a refund after cancellation.
4. Under TCS, the firm will pay tax on price when it purchases the goods from a supplier and will have to bear the extra burden.
Impact on IT Sector
1. It is good for IT industry that GST will eliminate multiple levies and no difference between goods and services for taxation purpose. Under GST, input GST will be available on purchase of goods required for setting IT infrastructure which will reduce cost in long run.
2. No need to invest in logistics of creating warehouses in every state of country.
Negative Impact:
1. Cost of electronics like mobile phones, laptops will rise because GST rate will be more than current duty on manufactured goods.
2. Currently, IT companies are registered under single CST authorities so all accounting and billing is done from a centralized location. Due to destination based consumption tax and place of supply provisions, multiple invoicing will be required if services delivered under a single contract are delivered from various offices/ centers of the same entity so it will make billing and invoicing complex for IT industry.
Impact on Media & Entertainment
1. Currently many taxes like entertainment tax, service taxes etc. are charged. Under GST, a uniform tax will be charged (less than multiple taxes) so it will decrease prices of tickets.
2. The cost will also reduce due to the availability of input tax credit which cannot be claimed currently.e. payments to artists etc. Major beneficiary will be Dish TV, PVR so the overall positive benefit is expected.
The overall impact of GST will be positive on startup business, automobile sector, tourism industry, FMCG sector, media & entertainment industry while negative in case of hospitality, alcoholic products as well as e-commerce sector.
About the Authors:
Neha Rani Research Scholar, Department of Commerce, MDU, Rohtak, Haryana, India
Sunil Research Scholar, Department of Commerce, MDU, Rohtak, Haryana, India
Cite this Article:
Rani, N. & Sunil"An Overview of the Impact of GST on Various Sectors of Indian Economy", The International Journal Of Business & Management (ISSN 2321–8916) , October 2016. Download the Paper
Impact of GST on FMCG Sector
1. GST will be beneficial for some companies like Havells, Blue Star, HUL, Emami, Godrej consumer. Around 3000 crore FMCG industries in India is the major contributor to the state revenue approx. 40,000 crore Food & Beverage and household & personal care are major FMCG industries currently. Tax at 27% (12.5% excise and VAT at 12 to 14.5% on top of excise) was paid by FMCG industries. After subsuming all GST rates, GST rate will be in range 17-20% which will benefit this sector.
2. Now mostly companies establish warehouse in each state to avoid CST on interstate sales. Warehouses opened from tax point rather than market proximity and transport considerations. Under GST, India is emerged as a single largest common market so local and interstate supply would be neutral so companies will be in beneficial position due to savings in warehousing and distribution cost.
3. FMCG distributors and retailers can set off input tax credit from services such as transport, rent against GST tax liability which is not available currently.
Doubts:
1. Some companies are enjoying tax incentives or exemptions according to current taxation system so GST effect can be negative on them.
2. Job work performance and stock transfers currently not taxed are likely to be taxed and will affect product outlay.
3. Some FMCG companies import raw materials but it will attract IGST so it will be costly against local products.
4. Beverages and tobacco products will be negatively affected due to taxation at the higher rate approximately 40% under GST.
Impact on E-Commerce
1. Up to now, many indirect taxes like VAT, excise duty, CST and service tax by categorizing offering goods and services while some offerings like digital downloads including software, music, e-books cannot be categorized into goods & services so to decide VAT/CST or service tax will be charged is a challenge.By GST, the single tax will be charged across the country. All goods & services will be taxed at the single rate so no problem of categorizing.
2. Issues related to interstate movement of goods and services like entry taxes with the requirement of statutory form, way bills, road permits, and local registration will be resolved under GST.
3. Reduction in cost due to the elimination of the cascading effect of taxes on prices.
Negative Impact:
1. Now the tax will be collected at source and it is the duty of e-commerce firms to file monthly and annual returns and collect tax on supplies of goods & services made by supplier so TCS guideline in the GST will increase workload and cost for e-commerce firms.
2. As small scale business are exempted up to 10 lacs but under GST, E-Commerce firms have to collect tax on every transaction whether relates to small scale. So firstly small firms have to pay tax then they apply for refund impacting negatively the working capital of small firms.
3. Tax Collected at Source (TCS) will affect negatively for goods sold for cash on delivery and later be rejected because firms have to bear tax from their own capital then apply for a refund after cancellation.
4. Under TCS, the firm will pay tax on price when it purchases the goods from a supplier and will have to bear the extra burden.
Impact on IT Sector
1. It is good for IT industry that GST will eliminate multiple levies and no difference between goods and services for taxation purpose. Under GST, input GST will be available on purchase of goods required for setting IT infrastructure which will reduce cost in long run.
2. No need to invest in logistics of creating warehouses in every state of country.
Negative Impact:
1. Cost of electronics like mobile phones, laptops will rise because GST rate will be more than current duty on manufactured goods.
2. Currently, IT companies are registered under single CST authorities so all accounting and billing is done from a centralized location. Due to destination based consumption tax and place of supply provisions, multiple invoicing will be required if services delivered under a single contract are delivered from various offices/ centers of the same entity so it will make billing and invoicing complex for IT industry.
Impact on Media & Entertainment
1. Currently many taxes like entertainment tax, service taxes etc. are charged. Under GST, a uniform tax will be charged (less than multiple taxes) so it will decrease prices of tickets.
2. The cost will also reduce due to the availability of input tax credit which cannot be claimed currently.e. payments to artists etc. Major beneficiary will be Dish TV, PVR so the overall positive benefit is expected.
The overall impact of GST will be positive on startup business, automobile sector, tourism industry, FMCG sector, media & entertainment industry while negative in case of hospitality, alcoholic products as well as e-commerce sector.
About the Authors:
Neha Rani Research Scholar, Department of Commerce, MDU, Rohtak, Haryana, India
Sunil Research Scholar, Department of Commerce, MDU, Rohtak, Haryana, India
Cite this Article:
Rani, N. & Sunil"An Overview of the Impact of GST on Various Sectors of Indian Economy", The International Journal Of Business & Management (ISSN 2321–8916) , October 2016. Download the Paper
