GST- The Road Ahead

Goods and services Tax (GST), hailed as the biggest tax reform since independence is one indirect tax for
the whole nation, which has unified the country into one tax regime. Rolled out in the country on 1 st July
2017, the various tax rates as decided by the GST Council are 0%, 5%, 12%, 18% and 28%. The real value
of GST will be in the area of tax governance, where a system plagued with plethora of discretionary, ad-
hoc taxes has and will move towards a rule-based, transparent and stable tax regime and a single tax is
applicable on the supply of goods and services, right from the manufacturer to the consumer.
How will GST work?
GST has been divided into three components the Central Goods and Services Tax(CGST), State Goods and
Services Tax (SGST), Inter State GST. The CSGT will subsume the Central indirect taxes like the service tax,
excise duty, additional customs duty, and additional special excise duty whereas SGST will subsume the
State indirect taxes like VAT, entertainment tax, octroi and others. The CGST will be levied by the Central
Govt whereas the SGST will be charged by the state government. In the case of an interstate sales
transactions, IGST will be collected by the Central Government. GST will allow the Input tax credit for the
taxes paid on the purchase of goods and services during a commercial activity and input tax credit of
CGST and SGST will be provided by the respective governments.
Impact on few key sectors

Sector Pre-GST Post-GST

Logistics Organized large scale logistics business
is predominantly exim-based owing in
part to supply chain considerations
driven by the indirect tax regime.
Banking/Finance Customer pays service tax on fees at
15%(including Swachh Bharat cess and
Krishi Kalyan cess )
Supply chain in India likely to see an
overhaul/transformation.
Supply chain in India likely to see an
overhaul/transformation.
GST on banking, insurance and
investments such as real estate,
mutual funds will see a hike of 3
percent as the GST will now be 18
percent

Banking transactions such as credit

card payments, fund transfer, ATM
transactions, processing fees on loans
etc., where the banks are levying
charges, increased tax rates would
apply.

Media/Telecom Service tax on DTH companies-
15%. Entertainment tax charged
by states on media-7% (weighted
average for Dish TV)
Service Tax on telecom services
15%
GST rate for cable and DTH services
fixed at 18%
Telecom services will be taxed at 18%
now. There was already pressure due
to entry of JIO and now increased tax
rates has aggravated the condition.
 Pharmaceutical Industry

I. Most of the drugs under the 5% bracket are used to cure malaria, HIV-AIDS, tuberculosis, and
diabetes were previously charged VAT around 4%

II. With the roll out of GST, the cost of insurance, pharmaceuticals, and international travel together
with quality health care is expected to reduce which would culminate into better prospects of
medical tourism in the country

Cement Industry

I. Cement and housing segment will be taxed at 28% which were earlier taxed around 27-31%

II. Cement prices are expected to go up marginally.

III. Tax incidence on cement, highest in Asia Pacific, has affected the health of the industry that is
witnessing only 70 per cent of capacity utilization due to low demand.

The bigger impact of GST for the sector would be in the form of lower freight cost due to efficient
movement of fleet and ease of cross border movement of goods.

Real Estate Sector

I. The taxation earlier was too complicated for buyers. The biggest takeaway of GST is a simple tax
that applies to the overall purchase price.
II. GST charges all under-construction properties at 12 per cent of the property value. This
excludes stamp duty and registration charges.
III. Reduced cost of logistics will result in reducing expenses as well.
There has been a marginal increase of 2 per cent for cement, and cut to 5 per cent for coal,
limestone, lignite which might bring down construction costs.
Airline Industry
I. Economy class air travel will become cheaper with tax rate fixed at 5% against the existing 5.6%,
II. Business class tickets will become dearer as the tax will go up from 9% to 12%.
III. Airlines can only claim input tax credit (ITC) on input services for the economy class, while in
case of business class they can claim ITC for spare parts, food items and other inputs excluding
cost on aviation fuel turbine (ATF).
IV. Airlines will pay GST of 5% for lease rentals

Key Takeaways:-
The GST in its current form has five rates. It is very likely this has led to cases of inverted taxation.
The tax on inputs is higher than the tax on output. There is even an outside chance that such
inverted taxation could lead to the rather absurd situation where the government will have to pay
 companies to produce. The principle of a destination-based tax is blown away when there are
embedded input taxes.
The imperfect GST that India now has is still superior to the inefficient indirect tax system that it has
replaced. But two things need to be done now:-
I. The first is that the complexity of the GST structure right now, as well as its novelty, will
mean that companies will take time to figure out their tax liabilities. The government would
do well to give taxpayers the benefit of doubt in the first few months.
II. The longer-term issue is streamlining the GST structure. Purists may demand a single-rate
GST, but a more viable option is to move to a three-rate structure0% on items of mass
consumption, 12% on most goods and services, and 28% on sin goods such as cigarettes.
According to a report by IMF, with the launch of GST the medium-term growth of India will be above
8% as it will enhance production and the movement of goods and services across Indian states.
Conclusion
As tax rates on mass consumption items descends activating inflation downtrend, economic
development will be reinforced and bolster the main concerns of firms. This will eventually lead to
upliftment for the market as profit will show signs of improvement.
Therefore, GST will play an instrumental role on the economy through its impact on both efficiency and
equity. It will impact the international trade, firms and the consumers on a wide scale. Thus, one must be
ready to deal with GST and many other changes that are going to come following its implementation.
Eventually, India shall move to join the world wide standards in taxation, corporate laws and managerial
practices and be among the leaders in these fields.