Goods and Services Tax (GST) is enacted to simplify the existing complex tax structure by supporting and enhancing the economic growth of a country in the present global business context. GST is a comprehensive tax levy on manufacturing, sale and consumption of goods and services at a national level. GST is an indirect tax at all the stages of production to bring about uniformity in the system. Since our Government is Federal and both State & Central Government has the power to collect indirect taxes, compromise is made on dual GST viz. State Goods & Service Tax ‘SGST’ and Centre Goods and Service Tax ‘CGST’. The four GST slabs have been set at 5%, 12%, 18% and 28% for different items or services. As a result of introduction of GST the prices of commodities in all states would be equal as state taxes are abolished. The rationale of GST is to support the theme of ‘Ease of Doing Business’ in India.
Let’s understand the effect of GST on various industries in nutshell.
Impact on Electronic Appliances: The excise duty of 12.5% and VAT of 14.5% was levied on electronic appliances. After GST only single tax rate is applicable of 18%. The rates for household electronic appliances has risen to 28% GST will be levied and it is considered as luxury goods by Indian Government.
Impact on Entertainment Industry: Entertainment tax differs from state to state it ranged from 0% to 110% under VAT regime with an average of 30%. After implementation of GST @28% it will have a mixed effect, depending on the states. For states with a high entertainment tax, GST will be beneficial as it will reduce the prices for the end consumers. However, GST will have a negative effect on states which already have a low entertainment tax.
At the same time to the entertainment industry owners (theatre and amusement park) the tax liability will get reduced due to a provision of input tax credit.
Impact on Automobile Industry: There were several taxes applicable on this sector like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty which will be subsumed by GST. In current tax structure for small cars, mid- size cars, luxury cars & SUV cars approximately 28% to 45% taxes were levied and paid by the consumer. After GST the tax for small & mid-sized cars are 18% and for luxury cars & SUV cars would be 28%. There would be less burden of tax on end consumers under GST. The importers/ dealers they would able to claim the amount of GST paid on goods imported/sold whereas currently, they are ineligible to claim the excise duty and VAT paid. GST would not offer any free services & warranties free from tax. There is no clearance for unused cars. Implementation of GST would reduce the cost of manufacturing of cars due to the subsuming of different taxes.
Impact on Pharmaceutical Industry: The prices of medicines are attracting 12% GST which were taxed VAT @ 5% previously specially Ayurveda. GST implementation resulted in to minimisation of the cascading effects of manifold taxes those were applicable to one product.
Impact on Cement Industries: The tax rates for cement industry were very complex. There are various rates and duties of excise applicable on different types of cement depending on whether they are supplied in bulk form or in packaged form or whether for industrial or trade purposes. The rates were including excise & VAT totals up to around 24-25%. After GST there is one single tax rate of 28% which will result into increase in the cost of infrastructure.
Impact on FMCG Industries: The tax structure is likely to leverage mixed for this sector as there is a mixed impact on FMCG Products & also the Logistics cost has reduced by 1.5 % approximately. For certain products the tax levied is reduced (toothpaste, soap, tea etc.) and for some products it has increased (detergents, shampoos, skincare etc.)
GST has transformed entire country into a one common market. It can be concluded as ‘GST is ONE NATION ONE TAX’.
Prof. Amrita Karnawat
Indira School of Business Studies, Pune.