With the arrival of July 1, 2017, India’s tax administration system had witnessed a paradigm shift. Yes, it would not be wrong to say that with the much-awaited launch of Goods and Services Tax (GST), a curiosity has generated among the masses in order to understand the new system. As we all know so far that a host of central and state government taxes such as sales tax, excise duty, VAT, service tax, entertainment tax, luxury tax and many other will now be replaced with a one-indirect tax called GST, making things simpler for many. But there is one question that bothers many is that what would be the GST impact on Indian economy? From top business executives to small enterprises, there is no denying the fact that everyone is eager to know what this new indirect tax regime has in store for them. Talking about the impact of Goods and Services Tax, it will be monumental as far reshaping the economy is concerned.
Well, since our economy is a constituent of a diverse range of segments, having different market dynamics, so it would be worth reading to study the effect of this new indirect tax on each segment separately.
Manufacturing Sector: Talking about the manufacturing sector, ‘Make in India’ initiative, which was launched a few years ago is actually the driving growth of this sector, contributing around 15% in India’s GDP. However, to get the same pedal all the way, we need a unified tax system in the form of Goods and Services Tax. Earlier, the manufacturers were victimized by a vicious tax cycle, thus many had to close their businesses. But, with this new indirect tax, manufacturers are enjoying plenty of benefits such as- reduced transportation cost, reducing substantially the warehouse requirement and much more.
Agriculture Sector: When it comes to the agriculture sector, it contributes 16% to the GDP of the country, thus is eyeing a new era of growth under this new regime, which is likely to bring transparency, efficiency and improved supply chain. Moreover, with the help of better supply chain management, the wastage as well the cost for farmers and retailers can also be reduced.Not only this, it will also bring a change in the cost reduction of heavy machinery required to produce crops.
FMCG Sector: Being the fourth largest segment of the Indian economy, FMCG sector has a huge market size of more than US$ 13 Billion. Like many, this sector was also under the strain of multiple taxes, with an overall tax rate of 20%-25% before July 1, 2017. But with GST impact, the rates could come down to 18%-20%, thus the input credit which was earlier absent will now be there for FMCG businesses.
Import & Export: In the pre-GST scenario, the import and export of goods and services were under the purview of taxes such as Countervailing Duty (CVD) and Special Additional Duty (SAD). But now after Goods and Services Tax coming into effect both, CVD and SAD, which was earlier used to be levied on imports will now be replaced with Goods and Services Tax. Furthermore, the customers will have to pay custom duty along with IGST, the rate of which will be applicable to the rates of the imported goods in India.
Tourism & Hospitality Sector: Talking about hotel and tourism sector, the higher tax rates of 12% -28% under the GST could well dig a hole into the avenues of hotel chains across the country. For hospitality sector, both service tax and VAT come down from the levels of 15% and 12% to 9% and 6% respectively, for a room with a tariff value of ₹1,000, due to the effect of abatement. But after GST, a room with a tariff of ₹1000, no tax will be there on the same. While on the other hand, for rooms with a tariff of above ₹1,000 -2,500, 12% GST would be applicable on the same. Not only this, on rooms with tariff ₹2,500-5000 and above ₹5,000 will attract the GST of 18% and 28% respectively.
So, now after reading the complete article, I think you have well understood the GST Impact on Indian economy!