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How will GST impact different industries in India?

7/13/2017
How will GST impact different industries in India?

Undoubtedly, GST is one of the biggest reforms in the history of indirect taxes in India. It has come into effect from 1 July 2017. In this tax regime    four different tax slab rate of 5%, 12%, 18% and 28% for different goods are provided. The full-fledged impact of GST in real terms should come out after the period of 2-3 years. GST is designed to ease the doing of business in India. Here we have compiled the impact of GST on different industries in India. But before we proceed further

What is GST?

GST will remove the most of the indirect taxes and combined them in different tax slab under the GST regime. By removing most of the indirect taxes GST will remove the difficulties in doing business thus creating a less hassle free system and subsequently will increase the ease of doing business. From GST, it is expected that it will greatly increase the ease of doing business in India. GST is not an alien concept as it is already operational in around 160 countries of the world, India is joining the GST party so late. It is expected from GST that it will boost the GDP by 1-2 % and reduce the cost of input by 10 %.

Threshold Limit:

The existing threshold limit under GST is not same throughout the country. The threshold limit specified by GST council is Rs. 10 lakh for the North Eastern state and for the rest of India the existing threshold limit is Rs. 20 lakh. Any businessmen or business entity that is currently registered under any existing tax regime is required to register under GST. GST registration is required from every businessmen and owner who is previously registered under any tax regime irrespective of the threshold limit.

Impact of GST on Pharmaceutical Industry:

India is one of the largest producers of generic drugs. Indian pharmaceutical industry is world's third largest pharmaceutical industry in terms of volume. In terms of value, Indian pharmaceutical industry is world's 14th largest pharmaceutical industry. GST will benefit the pharmaceutical industry by making the taxation process easier and replacing most of the indirect taxes and duties. The new GST taxation rates have included pharmaceutical products into two tax slab one is of 5 percent and another one is 12 percent. Ayurvedic drugs and medicines would become more costly after the introduction of GST.

Impact of GST on Automobile Industry:

To see the impact on automobile industry, we have to look for the current tax structure. Currently, automobile sector is paying taxes around 27 percent to 45 percent, though this tax structure ranges from a small car to SUVs. The proposed GST rate for the automobile sector is 18 percent and for a luxury vehicle, proposed rate is only 28 percent, hence this would result in the lower cost of purchase for the consumers.

Impact of GST on telecom sector:

The proposed GST will end the issues related to the classifications of software, sim card and franchise fee, among others. Like all other sectors, the elimination of duality of taxes is expected to help the growth of telecom sector as well and ease the doing of business. However, proposed rate of telecom sector under the GST is 18 percent which is higher than the earlier rate of 15 percent. 

Impact of GST on manufacturing sector:

The GST regime is expected to boost the manufacturing sector as the removal of cascading taxation process will bring down the production cost of the product. GST also proposes the easy movement across the border of state hence making the transportation of the finished product, raw materials etc. hassle-free. Compliance with the GST is difficult and it may get difficult in starting.

Impact of GST on Oil & Gas:

The five key product of petroleum that means crude, ATF, natural gas, diesel and petrol are excluded from the GST for the initials years in order to give the sweet pie to the states. Remaining petroleum product such as Kerosene, naphthalene LPG etc. will come under GST regime. Because of this peculiarity industry would be forced to comply with both the current as well as GST regime, which is against the “one nation one tax” policy. One more clause in GST dealing with the additional 1 % non-creditable tax which will be levied by the state, it is exactly opposite to the spirit of GST. This non-creditable tax is a necessary evil. Non-creditable tax clause is proposed to be withdrawn after few years. Actually, this clause is a sweetener for the state, giving them some more avenues to generate revenue.

Impact of GST on real estate:

The impact of GST on real estate sector will be positive as GST will help remove the multiple taxations which are a pain point for both the consumers and builders. Some of the clauses in model GST law restricts credits on goods and services acquired for the construction of immovable property which may lead up to the rise in litigation. GST is supposed to benefits real estate sector by ensuring a uniform and easy compliance tax structure.

Impact of GST on consumer products:

Consumers good are expected to become cheaper under GST regime. The present rate of taxation is around 25-30 percent on consumer goods and proposed GST rate is around 17-8 percent hence making it cheaper. GST is also supposed to address the challenge of tax leakage in the supply chain. GST is quite beneficial for the consumer goods and FMCG companies.

Impact of GST on Cement Industry:

In the current scenario, cement industry is paying around 27 to 32 percent as tax and with the introduction of GST it is supposed to come down around 28 percent. Cement industry does not have much relief from the proposed GST regime. GST is likely to have a negative impact on cement industry and GST is also supposed to bring the downfall in manufacturing and mixture sector as well.

Impact of GST on Chemical Industry:

GST will have a positive impact on the chemical industry. Almost every predictable impact of the GST on any sector of Indian economy seems positive but for the chemical industry, it seems much positive. Chemical sector in India has long suffered the wrath of multiple additional taxes on their consumption capacity as well as their consumption demands but now this seems to end with the introduction of GST. The easing of CGST and SGST will result in the lower cascading effect of multiple taxations on the production capacity of chemical industries resulting in a reduction of production costs hence benefiting the chemical industries.