This article is written by Amit Kumar, Masters of Law (Business Law), Sikkim Central University, Gangtok Student during on internship at LeDroit India.
Keywords:
Indirect Taxation
Goods and Service Tax (GST)
Marketing
Indian Economy
Introduction
“GST that is Goods and Service Tax is the kind of indirect tax which is proposed to be in force from 1st July, 2017 which is already in force on many countries and they all were considering it is as sales tax system. The GST will be the levied on the manufacture, sale and consumption of goods and services in India. The council of the GST will be headed by Arun Jaitley (Ex. Finance minister). The main purpose of GST is to bring about the single tax system for the manufacture and the sales of goods at the both central and the state level in the country. The GST is mainly implemented to remove all other taxes like VAT (Value- Added Tax), Excise Duty and Sale Tax. The GST is a vast concept that simplifies the giant tax structure by supporting and enhancing the economic growth of a country. It is a comprehensive tax levy on manufacturing, sale and consumption of goods and services at a national level. On bringing GST into practice, there would be amalgamation of central and state taxes into a single tax payment.”
Objective of GST
“The main objective of the GST in India is to create a unified and simplified tax system by replacing multiple indirect taxes levied by the central and state government with a single, comprehensive tax. GST aims to achieve the following objectives: –
Simplify the Tax Structure- GST aims to simplify the complex indirect tax structure by replacing multiple taxes with a single tax, reducing compliance costs and making tax administration more efficient.
Create a common market- GST creates a common national market by eliminating barriers to inter-state trade, enabling a seamless flow of goods and services across the state borders.
Promote economic growth- GST is expected to reduce tax evasion by creating a comprehensive and transparent tax system and promoting greater tax compliance and business and individuals.
Ensure social justice- GST provides for a uniform tax rate across the country, ensuring social justice and reducing the tax burden on the common man.”
Types of GST Rate and GST Rate structure in India
“The primary GST slabs for any regular taxpayers are presently pegged at 0% (nil rated), 5%, 12%, 18% & 28%. There are a few lesser used GST rates such as 3% and 0.25%. also, the composition taxable person must pay GST at lower or nominal rates such as 1.5% or 5% or 6% on their turnover. There is a concept of TDS and TCS under GST as well whose rate are 2% and 1%.
The GST law levies cess in addition to the above GST rate on the sale of some items such as cigarettes, tobacco, aerated water, petrol and motor vehicles rates widely varying from 1% to 204%.
Impact of GST on different industries
Healthcare Sector – “Healthcare is one of the fastest emerging sectors in India as it has a lot of potential to generate employment and revenue. GST can improve investment in this sector, which ultimately leads to a rise in government revenue. It is a broad industry which covers everything related to medical and health, such as medical insurance, surgical equipment, medical devices, pharmacy, telemedicine, and other relevant aspects. There was around 13% of the burden on medical equipment and devices from all taxes combined. Currently, there is 12% of GST on medicines and medical supplies under the new GST reform. This 1% difference is very important for the industry in the long term. There are several other segments of the healthcare industry which are exempt from GST, such as hospitalization, medical services, and medicines. However, there is 18% GST levied on medical insurance premiums, which is higher than earlier rate, i.e., 15%. It usually affects other elements of healthcare in various ways. In the healthcare industry, the impact of GST adds to the certainty and transparency in the taxation system of India. Experts are hopeful that GST will bring revolutionary change by reducing obstacles in the booming healthcare sector of India. The sector has been nourishing a hope that healthcare services would be placed under zero-rating rather than exemption. This is desirable so as to make the healthcare services cheaper and tax free in entirety.” Presently the healthcare services are exempted but still costly. “This is for the reason that because of its being exempt supply, the Input tax credit of tax paid on various medical inputs and input services is not available to the sector which consequently gets embedded into the cost of the output services of healthcare. If the government can afford to make it zero-rated like physical export supplies or supplies to SEZs, then the output service of this sector would be getting the set off of the input stage taxes too, and at the same time the output service will already be enjoying the tax-free status. This will translate into a significant lowering of the cost of the services of this sector. “
Entertainment – “There were many taxes levied before the implementation of GST, such as state government tax, central tax, and also tax by local bodies. Since the implementation of GST, only one tax has been levied. The tax rate is ranging from 18% to 28%, as per the kind of entertainment facilities. For example, theater, TV and DTH, circus and movie tickets fall under 18% of GST (12% GST on movie tickets priced up to Rs. 100 and 18% for tickets above Rs. 100). In addition, 28% GST is levied on casinos, racing, sports events, amusement parks, and movie events. 12% and 18% are the general rate slabs in GST. This being so, 18% rate on services by way of admission to theater etc. is seemingly a moderate one, still amidst the spate of contents on the OTT platform, the theater industry is undergoing a very tough time further intensified by the setback given by lock down during the covid period. Further, it is only the entertainment tax earlier imposed by the State government that has been subsumed in GST; the entertainment tax levied by the local body is still continued on such admission services to cinema and all. This being so, the government should suitably place such services temporarily under a lower rate slab.”
IT Sector – “Information and Communication Technologies (IT/ITeS) are one of the most profitable sectors for the government as 18% GST is levied on services in general. However, various factors like ITC can reduce operating costs and eventually expand the overall profitability of the IT sector. It also benefits with removal of double tax, opportunities for creating GST software, easier administration of tax rate, and so on. In the pre-GST regime, this sector has been characterized as the most prone to disputes as to whether software involves sale of goods or provision of services. Ever evolving derivatives and variants of output in this sector has always been bone of contention in the regime of VAT and Service tax. The advent of GST has unified the goods and services and simplified the classification of supplies. This sector has benefited from that. However, the Concept of ‘Intermediary’ and the nonavailability of export benefits to them even though they earn foreign currency, has been an area where a lot of confusion continues to persist. The clarificatory circulars issued by CBIC have attempted to clarify the position to some extent; but firstly, they do not cover all situations of transactions in this field, and secondly, the circulars do not assume the legal sanctity of any statutory provision. This area is facing lack of stability of the GST law, which potentially may cost a lot to the underlying industries in the days to come when audit and enforcement intensifies at the end of the GST formations.”
Import – “An importer has to bear Customs Duty and “Integrated Goods & Service Tax (IGST)” on the import of services or goods. On some specified items GST Compensation Cess is also levied. IGST is imposed on the inter-state supply of services and goods. IGST on import of goods has substituted other taxes which were controlling the import of goods before implementation of GST, such as “Countervailing Duty (CVD)” and “Special Additional Duty (SAD)”. The import is largely influenced by the tax rate applied to imported goods. The biggest impact of GST on import of goods came in the form of curtailment of benefits of various export promotion schemes like Advance Authorization scheme (AA), Export Oriented Unit scheme (EOU), Export Promotion Capital Goods Scheme (EPCG) etc. In pre-GST regime the importer was getting tax exemption in respect of all taxes viz. Basic Customs Duty (BCD), Countervailing duty (CVD) which was to counter balance Central Excise duty on domestic sale, and Special Additional Duty (SAD) which was to counter balance the local VAT / Sales tax. Out of these the CVD and SAD were replaced by the IGST in the GST regime. However, the GST on its advent restricted the tax exemption only to the BCD, and mandated to pay the IGST (and Cess too wherever applicable) on import of goods into India. After a hue and cry from the importers’ fraternity, the government has restored the exemption also to IGST, but that is only as a temporary measure and can go anytime in future. The curtailment of exemption on this count had increased the capital blockages to the importers in the initial days after GST implementation, and would continue to do so when the temporary relief as above is withdrawn by the government.”
GST had in store yet another setback to the importers of goods under CIF contracts (Cost, insurance, Freight- all inclusive). While the Indian Customs taxes the entire of the single CIF value which is inclusive also of the freight charges from foreign country up to Indian port, the GST law again seeks to tax this freight element separately on some notional value. This double taxation has unjustifiably increased the tax burden on the importer, and also has triggered a spate of litigations in the courts of law. The litigation cost has further burdened the importers.
Export – “Since GST is a destination-based tax, the incidence of which falls essentially on the domestic consumption within the taxing jurisdiction, GST will not be imposed on the services and goods exported, barring few exceptional items which attract export duty too. This is in line with the international rule that taxes cannot be exported. However, this does not mean that exports are exempt from GST. In fact, export is not exempted, but is zero-rated. In zero-rated supplies while the tax on outward supply is either not collected or if collected it is refunded to the exporter, the input tax credit on the inputs and input services is allowed to be retained by the exporter. This input tax credit, in case of exempt supplies, needs to be restored to the government unlike in case of a zero-rated supply. The concept and treatment of export so far as its zero-rated status is concerned, has been the same in GST. However, obtaining a refund of the IGST paid on exports has been nothing less than a nightmare in the initial years of GST due to inefficient functioning of the half built GSTN IT base which was the only platform to process such refunds. Blockage of huge amounts in export refunds and the rigidity of the IT portal of GST has caused multifarious loss to the industries particularly in the initial years of GST implementation. There has been yet another trouble to the exporters in the form of restriction that if they imported inputs under specified tax-free schemes like Advance Authorization scheme (AA), Export Oriented Unit scheme (EOU), Export Promotion Capital Goods Scheme (EPCG) etc, then in that case they are prohibited from exporting on payment of IGST and claiming refund thereof. This restriction brought in with retro effect and beset with anomalies has troubled the trade like anything and has also resulted into a spate of litigation having reached right up to the level of the Apex Court of India. On the count of the above discussed restrictions, the competitiveness of the Indian goods has been and would also be adversely affected in the days to come.”
Agricultural Sector – “Agriculture has a great contribution to the overall GDP of the country, i.e., around 16%. Various sectors have been affected with the implementation of GST. Transportation of agro produce in different states is one of the major issues in the agriculture industry. Transportation may pose a serious issue to this sector in terms of taxation. This way, GST may be helpful to form the first national agricultural market in India. GST has exemption for many of the activities from the core sector of agriculture. The related labor jobs and transportation of Agri-products are also exempted from payment of GST. Moreover, abolition of check posts has smoothened the transportation of all goods which has benefitted this sector also.”
Real Estate – “GST has come up with some of the positive effects on real estate and property rates in India. GST has benefitted property buyers in India in the form of less tax burden due to the availability of input tax credit to this sector after the advent of GST. All of the under-construction properties are subject to 12% GST on property value, excluding registration and stamp duty. Developers and builders also enjoyed profitability because of “input tax credit” to pass all the benefits thereof to homebuyers. However, to the disadvantage of the developers of residential real estate properties, the scheme of 1% / 5% without the facility of ITC was made in operation subsequently which has taken away substantial benefit from this sector. Many other restrictions like requirement of procurement only from the registered dealers up to specified percentage and requirement of paying tax under reverse charge in case of failing from this, has dampened the growth potential of this sector. Further, as against the actual cost of land the GST allows deduction only of a presumptive value of land equivalent to 1/3rd of the total amount levied by the buyer. This presumptive value puts the developers in metropolitan cities and other cities with high land cost, in great disadvantage. In the sector of construction, most of the existing contracts are on fix-charge basis. This being so, the construction contractors are not finding themselves able to absorb the price hike having taken place due to various market factors including GST. This may potentially result into holding of the projects or delayed completion thereof. The ultimate burden of it will transmit ultimately to the ultimate beneficiaries. The contractor’s fraternity has represented with the government seeking relief in this area. Earlier, the builder or developer had to pay “Central Excise Duty”, VAT, and Entry Tax levied by the state government, which were collected on the amount of building material before GST. In addition, there was a 15% tax levied on the builder or developer for services like architect fees, approval charges, labor charges, etc. Such variations have been removed after the implementation of GST on construction costs. In addition, expenses have been reduced in logistics and “Input Tax Credit” serves as an added advantage.”
Textile Industry – GST has been very positive on textile and readymade garments and made it one of the most profitable sectors. It has various benefits, such as availability of ITC on capital goods and lower transportation cost as compared to previous tax structure.
Banking – There is a negative impact of GST on the banking sector as the tax rate is higher on all banking segments, i.e., 18%, while it was 15% service tax before the implementation of GST. Here are some of the effects of GST –
No free transactions between banks.
Dependence on SGST and CGST
Separate registration is needed in each part of the bank in every state.
Hotel & Tourism – It is one of the most lucrative sectors for the Indian economy as hotel and tourism plays a vital role in the economy and GDP of India. Each state government is serious on advancing their tourism sector with various schemes. In addition, the GST rate also varies for the hotels due to tariffs, –
12% GST on tariffs from Rs. 1000 to Rs. 7500 per night
18% GST on tariffs from Rs. 7500 onwards.
0% GST on tariffs below Rs. 1000.
Conclusion
The Goods and Services Tax (GST) is a critical tax reform since India’s independence, and it must be managed with utmost care and thoroughly analysed before implementation. Both the central and state governments need to conduct awareness and literacy programs about GST for various stakeholders. When comparing the challenges with its advantages, it is evident that the benefits outweigh the challenges. GST will provide the Indian economy with a robust and efficient tax system that promotes economic development. However, to realize these benefits, the country must establish a strong mechanism.
The primary objective of GST is to replace the Value Added Tax (VAT) and resolve the complexities present in the current indirect tax system. It aims to provide relief to consumers, producers, and the government alike.
REFFRENCE: –
GST: impact and implications on various industries in Indian economy (Journal of Internet Banking and Commerce, August 2017, vol. 22, no. 2)
A Perspective of GST Framework in India and its Effect on Various Industries (International Journal of Mechanical Engineering, Vol. 7 No. 4 April, 2022)
Kumar, M. R. (2019). Impact of Goods and Services Tax on Indian Economy. International Journal for Research in Applied Science & Engineering Technology (IJRASET), 7.
Impact Of GST On Different Sectors of Indian Economy (International Journal of Innovative Research and Advanced Studies (IJIRAS) Volume 5 Issue 3, March 2018)
www.dcmsme.gov.in/services-booklet.
