The Goods and Services Tax (GST), the biggest tax reform in Indian since Independence, come into effect at midnight today. The new tax regime will replace the existing taxation system where different states have different rates on the same item. The GST will replace all central and state indirect taxes like CENVAT, excise, customs, VAT, state excise. While some of the goods and services will get cheaper under the GST, some will cost more. But cost is not the only thing that will change under the new system as the GST effects a thorough overhaul on June 30 midnight when Prime Minister Narendra Modi and President Pranab Mukherjee launch the GST from the Parliament Building’s Central Hall.
The GST will impact all businesses in the country, but its effect will be different on each sector. The different tax rates are not the only thing that will affect how each sector is impacted by the GST but the way that the businesses have operated till now will also change from today.
Here is how the GST will impact different sectors of Indian economy:
GST impact on service sector
Service sector is one of the biggest job providers in the country and also contributes immensely to government coffers. In 2014, the effective service tax was 12.36 per cent which has increased to 15 per cent. However, from midnight today, most of the services will attract 18 per cent tax. Essential services like education services and health have been exempted from the GST and luxury services like 5-star hotels, race club betting and lotteries will fall under the 28 per cent slab. The new tax rate will affect IT services, telecommunication services, Insurance industry, business support services, Banking and Financial services etc.
The service sector already works in organised market and not much is expected to change after today, except the new tax rates and some compliance framework.
GST impact on retail sector
Retail sector forms one of the largest chunks of unorganised economy. While it provides millions of jobs and generates billions in trade, most of the wholesalers and retailers escape the tax net as there is no mechanism in place under the current law. Most of their transaction is done without an invoice and no entry is made in the books. However, that will change under the GST.
Under the GST, every invoice pertaining to taxable supply will have to be uploaded on GSTN portal and will link the buyers, wholesalers and retailers, it will now become very hard for traders to escape tax liability.
Also Read: Goods and Services Tax: History of India’s biggest tax reform and people who made it possible
GST impact on real estate sector
Real estate is one the fastest growing and most pivotal part of the Indian economy. The sector plays a very important role in employment generation and attracts huge investments. The 12 per cent GST on real estate will replace a number of existing taxes like VAT on construction material, excise on raw material, entry tax levy in different states and 4.5 per cent service tax. The tax has also been reduced on some raw material, like cement, under the GST. The builder will also get input tax credit for material he uses in construction and is liable to pass on the reduced tax benefit to customers.
According to a report by Edelweiss, the effective price for the buyer should fall by nearly 1 per cent. “The property price for the buyer should fall by ~1%. Higher tax rate of 12% under GST versus current effective tax of ~6% should be mostly offset by lower selling price (~7% reduction). Developer’s net margin is expected to remain unchanged,” the report says. The full impact of the GST on the real estate sector can only be studied after the new tax rates kick in but experts believe that the new tax regime will work positively for both builders and buyers. The GST implementation will also bring to the industry much required transparency and accountability.
Also Read: Goods and Services Tax (GST) midnight launch: When and where to watch, guest list, sequence of events and more
GST impact on automobile sector
The Indian automobile industry is one of the largest and also the fastest growing. There is a huge demand of two-wheelers and passenger vehicles in the country which are largely produced within the country, generating millions of jobs. There are several taxes applicable under the current tax system on this sector excise, VAT, sales tax, road tax, motor vehicle tax, registration duty which will all be subsumed by the GST. The GST rate will be less than the effective tax (varies according to states) and this will bring down the price. The automobile industry is largely enthusiastic about the GST implementation as it is expected to push the growth which was somehow affected by demonetisation.
GST impact on textile industry
The Indian textile industry provides huge employment opportunities and contributes about 10 per cent of the total annual export. A large portion of the textile industry works under informal sector which escapes the tax net. The working condition is also not very good. Taxed at 5 per cent under the GST, the new tax rate is a little higher than the existing one and the industry is not too happy about it. The reform is expected to bring those who used to escape under the existing law under the tax net. The impact of the GST on the textile sector can only be fully understood once it has gone through the changes.
GST impact on agriculture sector
Over 58 per cent of the rural households depend on agriculture as their principal means of livelihood. The sector is the largest employment generator in the country and covers 16 per cent of the GDP. In terms of taxation, not much is changed under the GST as all of the produce will still remain untaxed. However, the transportation of agri products across state lines will become easier as the GST provides a single market. Food processing industry will also benefit from the reforms which in turn would work in favour of the Agriculture sector.
GST impact on e-commerce sector
E-commerce sector has seen an unprecedented growth in the last decade and is expected to breach the $100- billion mark by 2020. The companies face a number of challenges, varying tax rates across states among them. The GST will unify the country into single market. There were not enough regulations in terms of e-commerce industry but with GST, a standard will come into effect for online retailers. Marketplace operators like Flipkart and Amazon are required to pay a certain amount in form of “Tax Collection at Source (TCS)” under the GST law. For now, this provision has been deferred and will be implemented at a later date. The GST will bring a lot of documentations for the sellers and marketplace operators but the reform will bring a certain standard and uniformity to the sector.
The full impact of a reform of such massive level can only be studied after some time, when enough data is available. But the GST is expected to bring most part of the informal sector into tax net, generating revenue for the government and bringing uniformity to economy.