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GST ( Goods and Services Tax) – Part 2

By on July 1, 2017 in Trade Policies with 0 Comments

GST

The previous blog was an introduction to the goods and services tax that will come into effect from the 1st of July, 2017. This blog is a further extension of it and explains how will GST affect our lives.

Some facts about GST in India

  • Since the goods and services tax is a destination based tax, clarity on where the goods are going is necessary. Moreover, an additional tax of 1 percent will be levied on the supply of goods in inter state trade.
  • Some products and services such as petroleum, alcohol ( for human consumption ), natural gas etc. have been kept outside of GST
  • The revenue generated from the goods and services tax will be divided between the union government and state government according to what would be defined by the Indian parliament
  • The importance of GST can be gauged from the fact that it needed a constitutional amendment to pass the bill through parliament. The one hundred and twenty second amendment bill of the constitution of India was passed in 2016. According to it, a national goods and services tax ( GST) is to be implemented from July 1, 2017
  • GST will bring India on par with countries having a much more structured taxation system and will signal to global businesses about India’s efforts to improve ease of doing business here. Moreover, initiatives like “Make In India”are also expected to receive a boost due to the implementation of GST
  • Globally the GST tax rate varies widely, it’s the lowest in Aruba ( 1.5 percent) and the highest in Hungary ( 27 percent). As for India, a four tier GST is to be implemented, with two standard rates ( 12 percent & 18 percent), a 5 percent tax on essential goods and a 28 percent and above tax on luxury goods

 

How GST will affect our daily lives

 How will the goods and services tax affect our lives? This question has been the center of debate across India’s living rooms and office spaces. Once implemented, what necessary daily items will become costlier and what will become cheaper, from housewives to CEO’s, everybody has been pondering over this question. Furthermore, there are a lot of rumors surrounding the GST, most of which are nothing but hearsay. Let’s have a look at how the GST will affect our daily life, from the common man’s perspective.

  • GST will have some impact on household expenses. Rates of essential and daily use items will certainly change. So there’s a possibility that things that were hitherto cheaper could become comparatively more expensive and vice-versa. To elaborate, let’s have a look at the below mentioned info-graph.

Household expenses

Source – ClearTax

As the above info-graph suggests, food will become cheaper, so will entertainment and

personal care products like toothpaste, hair oil, soaps etc, While your mobile bill might see

an increase.

  • Indians with a sweet tooth might have to pay extra for their favorite mithai from the neighborhood halwai, as these will now be taxed at 5 percent
  • As for other household expenses like the electricity bill, since electricity has been left out of GST, the monthly electricity bill will not increase. Moreover, as there has been a reduction of taxes on coal and since many power plants use coal as their primary source, there’s some possibility of reduction in electricity rates
  • Education and healthcare have been exempted from GST, thus the expenses incurred on your children’s education and medical issues pertaining to you and your family will stay the same

 

How will GST affect various industries

The goods and services tax being an all encompassing tax will affect every sector in some form or the other. Some traders across India have also been complaining about lack of clarity. However, due to the all encompassing nature of this tax, this initial apprehension amongst traders was expected. Let’s have a look at sector wise break up of the effect GST will have.

  • Banking – The current service tax in the banking sector is 15 percent. It has been hiked to 18 percent in the GST. So the effect of GST on the banking sector can be termed as negative
  • Consumer staples – Consumer staples mean products such as food, beverages and other household products. The present tax rate on consumer staples is 22 percent. After the implementation of the GST, it will become 18 percent. Thus the effect of GST on this sector is positive
  • Media – The current tax in this sector is 15 percent plus 7 percent entertainment tax levied by states, adding up to 22 percent. After the implementation of GST, there will be a unified tax of 18 percent, resulting in a largely positive effect
  • Telecom – The current tax rate in the telecom sector is 15 percent. After the implementation of GST, it will be 18 percent. Negative effect
  • Automotive sector – The current tax rate in this sector is 27 percent. After the implementation of GST, it will be 18 percent. Thus the automotive sector can be termed as one of the major beneficiaries of GST
  • Metals – Current tax rate is 18 percent, after the implementation of GST, it will stay at 18 percent
  • Real estate sector – The current stamp duty in the real estate sector is 7 percent. After the implementation of GST, it will rise to around 15 percent. Thus it would suffice to say that GST will have a negative impact on the real estate sector
  • Pharmaceutical sector – The tax rate will increase to 18 percent from the prevailing 15 percent

 

How will GST affect India’s e-commerce industry

E-commerce has been thought of as a sunrise sector in India for the past few years, with globally renowned organizations investing in e-commerce firms in India, in the hopes of getting a footprint in this sector. It’s imperative to ask this question, how will GST, the biggest taxation overhaul in India’s history affect the country’s e-commerce sector. Let’s have a look at it in detail

  • The Indian government has taken a different approach for the e-commerce sector as regards to GST. Whereas in every sector, the government has specified a threshold limit, above which every firm is liable to be registered under the goods and service tax. The e-commerce sector has no such threshold limit, i.e – every seller has to be registered under the goods and services tax
  • The e-commerce sector is mired in multiple taxes, resulting in a lack of clarity amongst e-commerce organizations. The complexities of this sector, logistics, advertisement, warehousing etc. sometimes makes it harder to differentiate between goods and services. Moreover, an interesting fact is that a number of e-commerce transactions such as gift vouchers, cash on delivery etc. are presently undefined in the tax laws. GST with it’s uniformed approach to taxation will bring much required clarity of this sector
  • One important point to note here is that for e-commerce companies who are engaged in buying products, storing inventory and afterwards selling to the end customer, the excise tax has been increased to 17-18 percent, in place of the current 12.5 percent
  • The present taxation structure leads to variable pricing. Maharashtra has a tax rate of 13.5 percent on mobile phones, while Karnataka has a tax rate of 5 percent. E-commerce companies naturally source mobile phones from sellers in Karnataka, thus providing them with cost benefits as compared to offline stores. The introduction GST will result in such taxation benefits for e-commerce firms ceasing to exit. Thus it would be safe to assume that GST will result in standard pricing of mobile phones and likewise other goods, be it e-sellers or offline sellers
  • A tax of 2 percent has been levied on sellers selling to e-commerce portals, this tax is not applicable on offline sellers of products. This move may result in a number of sellers completely ignoring e-commerce portals and becoming exclusively offline sellers of products
  • If any seller wishes to sell his products on e-commerce sites, it’s mandatory for him/her to be registered under the GST. This move will surely weed out thousands of unregistered sellers on e-commerce sites that are operating at present
  • Another change that has been mandated under the GST law is that all freebies and discounts offered by E-commerce firms have to be specifically mentioned on the sale invoice.  Moreover, GST is applicable on every post sale discount also.

 

Conclusion

The goods and services tax is without a doubt the biggest tax reform in India’s history. A reform that was very much required to ensure a stable and uniform taxation law, two attributes that are an absolute essential for a nation that is wanting to become an attractive destination for investment. It has to be accepted that owing to the complexities of goods and services tax, people belonging to various sections of the society are and will be initially apprehensive, what is essential is proper clarity on GST related issues. The government has made a sincere effort towards providing answers to complicated issues and the effort has done a lot to calm the nerves of everyone involved, from traders to customers.

GST-Cheap-Expensive

 

Source – Trak.in

 

The above info-graph gives a fairly good idea about what will get cheaper and what will get more expensive once the goods and services tax is implemented.

 

 

As mentioned in this blog, the government of India is taking innumerable steps aimed at clarifying the pertinent issues which people have with GST. We give you a short FAQ containing 100 queries that were received by government of India’s askGST_GOI twitter handle and their replies.

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Note  – Please click on the images to enlarge them

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