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Anyone manufacturing anything in India will tell you that the Goods and Services Tax
(GST) is the single most important tax reform. Indias manufacturing sector
contributes 16% to Indias gross domestic product or GDP. It is the biggest employer
after agriculture. Over the past two decades though, the growth in the manufacturing
sector has remained stagnant. Complex taxation and inadequate infrastructure have
stalled the march of a sector that is expected to create jobs.
GST is expected to eliminate complexities and the cascading effect of multiple taxes.
This, in turn, will provide a shot in the arm to the indigenous manufacturing sector. Latest
developments after the 11th GST Council meeting held recently suggest that the GST may
be rolled out from July 1, 2017, onwards.
A four- slab tax structure of 5, 12, 18, 28% has been suggested. The lowest tax rate of
5% will be applicable on items of mass consumption. These include tea, spices and
cooking oils. The two tax slabs of 12% and 18% will cover remaining manufactured items.
The highest tax slab of 28% is applicable to pan masala, tobacco, luxury cars and aerated
drinks. Here is the impact that the implementation of GST will have on the manufacturing
sector.