The Government of India rolled-out GST with the hope of making taxation system in the country simpler from what the previous regime was. The main aim of GST is to supposedly create a single taxation system. However, the impact of GST will vary as the taxation rates for industries like manufacturing, distribution, retailer and service providers will be different from one another.
The Impact of GST on Various Industries
Influence of GST on Manufacturers, Distributor, and Retailers:
GST will likely promote competitiveness and production within the manufacturing sector. The multi taxation practice which has been prevalent in these industries will be clubbed together under GST which in turn will increase production and more focus can be put towards quality.
Influence of GST on Logistics:
Logistics sector in India under the previous tax structure has been maintaining warehouses in multiple locations across states where the business is established to avoid paying CST and state entry taxes. Many of these warehouses have been suffering due to the need to operate in multiple locations and haven’t been able to progress well. But, under GST most of the woes faced by the logistics sector has been eliminated and now goods can freely move across states without paying entry taxes.
Influence of GST on E-commerce:
E-commerce sector in India has witnessed tremendous growth in recent years. GST will enhance the growth of e-com industry. The only set-back of GST on this industry is the Tax Collected at Source (TCS) mechanism which many companies are not too excited about.
Influence of GST on Pharmaceutical and Healthcare Sector:
GST will be of enormous benefit to healthcare and pharmaceutical industry. It will profit the common drug makers by giving a boost to medical tourism as the tax structure of GST offers a simplified system. GST will also make health care items more accessible for the public in general.
Influence of GST on Telecommunications:
The prices of telecom services are expected to come down under GST. Efficient inventory management and the strengthening of workflow in the warehouses will help manufacturers save on its cost of manufacturing. Manufacturers of mobile phone will also have the ease of selling their products as GST will eliminate indirect taxation during transfer of goods as well as the need to set up state-specified entities.
Influence of GST on Textile Industries:
As one of the key contributors in the total annual export value of India, the textile industry will see growth with GST. The current 10% contribution to the export value is likely to increase, since under GST it will attract no indirect taxes and thereby there will be more job prospects in the textile industry.
Influence of GST on Real Estate:
Real estate industry holds an important part in the employment segment of India and it is one of the top sectors that contributes to the economy. GST will also bring about the much-needed transparency in the real estate sector as every sale or purchase will be accounted for and taxed accordingly.
Influence of GST on Agricultural Sector:
The largest contributor to the overall GDP of India, with a contribution of around 16% is the agricultural sector. By implementing GST, the big issue of transportation of agricultural products will be resolved. GST will eliminate the taxation at check-posts, taking away the burden of transport taxes from the agricultural sector.
Influence of GST on FMCG:
GST will remove the requirement of setting up multiple storages of a single business from which the Fast-moving consumer goods (FMCG) sector will see huge profits in logistics and distribution. Under GST, the tax rate for FMCG will be 18-19% (depending on the type of product) which is subsequently a lot lesser rate from its former 24-25% rate. Everything, including excise duty, entry tax and VAT have been merged into GST.
Influence of GST for Freelancers:
Despite being a rare field in India, the freelancing sector will soon pick momentum with GST. GST regime will allow freelancers to easily file taxes online under the head of service providers, as per the assigned tax rate.
Influence of GST on Automobiles:
In recent years the automobile industry has been significantly growing with the increasing need of the populace. The previous taxation structure imposed many taxes like excise, sales tax, motor vehicle tax, VAT, road tax and duty on registration but under GST these taxes will come under one banner. It is anticipated that many automobile companies will start slashing their price tags in the coming months.
Influence of GST on Start-ups:
The GST system will benefits start-ups greatly because in the previous taxation structure imposition of taxes differed from one state to another as each state had its own VAT law. The VAT law was not a convenient system especially for companies with PAN India presence. Under GST, start-ups will enjoy the benefit of Do It Yourself Model (DIY), tax credit on purchases as well as the free transfer of goods and services from one state to another.
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The Benefits of GST Regime
The roll-out of GST will have three major advantages in India.
- The country will witness a reduction in poverty as GST will double the resources which are required for processing development. The impact will be made indirectly since tax base will be lighter which will, in turn, increase the fund resources of the Central and the State government. The result will be quite evident because there will be a substantial increase in the resources of the poorest states who also happen to be those states with the largest consumer base.
- The previous tax structure in India was a big mess where goods manufacturer and service providers exploited the taxation system by evading or paying deficit taxes. The deformation in the previous taxation system was due to the Central Sales Tax (CST) on goods sold in interstate, the multiple impositions of intra-state taxes and the stretched-out nature of duty imposition. CST will not be applicable and the various indirect taxes in the previous tax regime will all fall into the GST system. Since GST will also be applied on the import of goods and services unlike the former taxation structure thus, the tax burden will be equally levied.
- There will be a significant improvement in tax governance under GST. Taxpayers will be able to claim input tax credit, as each step in the tax chain will be documented and be used as verification for the claim. Since GST is monitored both by the Central and State Government there will be no hassle in the taxation process. If the state government overlooks or fails to detect a flaw, the central government will rectify the error when it reaches their end.