The GST law in India would be a Dual GST. The Central Government and the State Governments would levy GST concurrently on a common base value. All goods and services, except for a few excluded/ exempted goods, would be brought into the GST base. There would be no major distinction between goods and services for the purpose of imposition of tax though in case of place of supply there could be some differences. In addition, difference in rate of GST shall also there.
- 1. Impact on Traders
(a) Tax on value addition: The impact of tax on the wholesaler or retailer would be limited to the value addition. The tax paid at earlier stages (except CGST & SGST of other States) would be available as set off for payment of GST on supplies. Therefore, traders would prefer to buy/receive supplies with invoice pre-and post GST.
(b) Reduce cascading: Cost of products and services would reduce normally due to the cascading effect of tax being reduced. Service tax credits would be available and going forward even the capital goods used for storing, handling etc.
Read [STRUCTURE OF GST]
Read [STRUCTURE OF GST]
(c) SGST levy: CGST and SGST would be levied on the local supply of goods within State. IGST (comprising of CGST and SGST) would be levied on inter-State supply of goods.
(d) No subsequent sale or sale in transit under the CST Act against Forms E-1/2: This exemption as per section 6(2) of the CST Act is not continued under GST levy. GST would be charged on both transactions.
(e) Export supplies Under Form H/ Supplies to SEZ under form I: Not available.
(f) Stock transfers: Presently, stock transfer is done without charging CST against Form F. Under GST law, stock transfers from one State to other would be liable to GST.
- Qus :Whether branch transfer taxable? At present, the transfer of goods without payment of CST is permissible when one transfers it to self or agent under Form “F”. Many States have input tax reversal to be made in such cases on value of goods purchased locally For Example 2% in Karnataka, 5 % In Tamil Nadu etc.
- Ans :Under GST, the movement of goods or services from one State to another on transfer basis would be subject to IGST [total of CGST+SGST]. Therefore, tax would not cascade to the extent of restriction. However, it will have issues of increased working capital, storage and logistics. The transfer of goods or services within a State with a separate business vertical would be liable to SGST and CGST. In case there is only one registration in the State then there would be no GST [CGST+SGST] on the stock transfer.
(g) Stock transfers to branches/consignment agents within the State: Under GST, these transfers would not be taxed as the registration number of transferor and transferee is same. Where the division/ branch or agent has a different registration CGST & SGST would be charged.
(h) Small Traders: They would be eligible for the [composition scheme] upto Rs 50 lakhs provided their aggregate turnover in the preceding financial year did not exceed Rs. 50 lakh. After that, normal rate will apply. The essential conditions to be complied for availing the benefit of the aforesaid Composition Scheme are as under
- (i) No credit to dealer/ customer;
- (ii) No inter-state supply of goods.
- (iii)Only suitable for Business to Consumer transactions.
- (i) Supply of goods &/or Services to Registered dealers from Unregistered Dealers
- In terms of Section 9(4), central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient of such goods or services or both. This is a significant change which would force even small tax payers to go for the regular scheme of full tax with credit if they want to deal with any registered businesses.
- 2. Impact on Manufacturers
(a) Competitive in market: There would be a saving in taxes due to less restrictions in taking setoff of taxes paid at various stages of manufacture reducing the cost of goods/ services supplied. This would make them more competitive both in domestic and the international markets.
(b) Valuation of the supply of goods: At present, excise duty is paid on the event of manufacture of excisable goods and VAT on the sale of goods. VAT/CST is computed on sale price+ excise duty paid. With the shift of taxable event from manufacture to supply of goods, the valuation of goods could be simplified. Under GST, actual value received as a consideration for the supply of goods would be subject to GST with some exceptions.
(c) Cheaper exports: Exports would be cheaper as taxes paid at earlier stages could be refunded to a larger extent. [credit restrictions can lead to tax sticking]
(d) Ease of doing Business: Adoption of Information technology in GST regime will enable the organization to do business with ease.
(e) Transaction costs: The transaction costs of compliance would reduce due to widespread computerization and online filling of forms and returns and payment of taxes. However, the need to upload all transactions may lead to increased compliance cost for medium sector while for the small sector it may not be bearable.
(f) Manufacturers under administration of State VAT officials: Manufacturers having a value of clearances of less than Rs. 150 Lakhs are exempt under present Excise law. The matter of administration has not been resolved as on date.
- 3. Impact on Service Providers
(a) Present destination based to proposed consumption based levy: Presently, service tax is levied mainly at the origin and is a destination based levy, the burden of which is borne by the end customer. Under GST generally they would be taxed in the same way except that the place of supply would have to be confirmed. Tax would flow to the place of consumption.
(b) Service tax-SGST levied by States: Under GST law, the service tax would be levied not just by Centre but also by the States which would be empowered to levy SGST by amendment to the Constitution of India.
(c) Taxes received by consuming State: If services are rendered from one State to another, then tax would ultimately go to the consuming State.
(d) Increased set off with VAT: The VAT credit for goods which was not available to the service provider would be available under GST.
- 4. Impact on the Consumers
(a) Reduction in price: Generally, the purchase price would reduce as tax content of most products would come down. But if a product has hitherto not been subjected to tax completely then the price would increase. Further those items which are now taxable where tax rate earlier was zero may be more expensive as exemption and zero rated lists of items may come down in the GST regime.
(b) Transparency: The tax paid would be clearly mentioned in the invoice given to the customer.
(c) Options to customer: There would be free trade and commerce between States and throughout the country which would provide more options to the consumer.
- 5. Central Government
(a) Increased collection of CGST and IGST: The collection of taxes-CGST and IGST would increase when more and more assesses register and pay taxes due to simplified tax laws under GST regime.
(b) Loss of CST revenues: The CST which was 2 % accruing to the State of collection has been subsumed into GST. This revenue would not be available to the States.
(c) Refunds under GST: The refunds under Central excise and service tax laws take long time. However, in GST Regime, refunds are expected to be processed faster with 90% of the total refund amount being available on submission of proper documents.
(d) Reduced corruption: When the laws are simplified, then the chances of multiple interpretations would get reduced, leading to reduction in disputes and consequent litigation. Also, the automation of the payments/returns filing and other compliances could mean that the interaction between the assessee and the department officers would come down to minimum. This would reduce corruption and increase ethics gradually.
(e) Compensation for loss of revenues to States: The compensation of loss of tax revenues to the States on account of implementation of GST would be an outgo. In reality there may be minimal outgo except for the weaker States. All expected to gain due to increased compliance.
- 6. State Government
(a) Proliferation of computerization leading to fall in transaction costs: Due to increase in computerization due to GSTN, the tax administration would be easier and cost of collection would be less.
(b) The Destination Principle: States which are net consumers would benefit due to the accrual on destination. The producing States may have a comparative disadvantage.
- 7. Impact on the country
(a) Increased FDI: The flow of Foreign Direct Investments may increase once GST is implemented as the present complicated/ multiple tax laws are one of the reasons foreign Companies are wary of coming to India in addition to widespread corruption.
(b) Growth in overall revenue: It is estimated that India could get revenue of $15 billion per annum by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. Over a period, the dilution of the principles may see that only part of this is accruing.
(c) Single point taxation: Uniformity in tax laws will lead to single point taxation for supply of goods or services all over India. This increases the tax compliance and more assesses will come into tax net.
(d) Simplified tax laws: This reduces litigation and waste of time of the judiciary and the assessee due to frivolous proceedings at various levels of adjudication and appellate authorities. Present law appears to be much worse and an amalgam of the bad parts of VAT/ ST/ CE.
(e) Increase in exports and employment- GST could also result in increased employment, promotion of exports and consequently a significant boost to overall economic growth and factors of production -land labour and capital.
- 8. Overall Impact
(a) Change in law and procedure: Since it is a major indirect tax reform in India, there would be new legislations and procedures. The entire indirect tax code would be a new one.
(b) Change in tax-rates: The standard rate of 12.5 % for central excise, Service tax, along with residuary rate of VAT at 12.5-14.5% brings the overall rate to 25%-30%. But, post GST, the general rate will be 18%; a net gain of almost 7%-12%. Most of the dealers and consumers would experience the change in tax rates, either significantly or marginally. When the tax rates are increased for some products it could lead to tax evasion as well.
(c) GST based on HSN: The central excise tariff based classification would no longer be applicable. It would reduce the interpretational issues in respect of class of commodities.
(d) Availment of tax credit: GST would facilitate near seamless credit across the entire supply chain and across all States under a common tax base. At present no cross credits are available across central excise/service tax to local VAT/sales tax. Under the GST law, the [Input tax credit (ITC)] (set off) would be given for Central GST against CGST and the States would give input tax credit (ITC) SGST to SGST. Cross-utilization of credit between Central GST and State GST would not be allowed.
(e) Credit availment based on vendor’s invoices: The credit of excise duty paid is available based on the excise invoice raised by manufacturer or service provider. The credit is available under the Service Tax law when the invoice amount is paid within 3 months of the invoice date. In respect of joint charge and reverse charge, based on receipt of payment on the basis of payment challans of the assessee. Under State VAT law, credit is allowable on the basis of tax invoice. Under GST the credits could be availed based on the invoices of vendors under CGST and SGST. But the onus may shift onto the assessee to ensure that the amount of the CGST/SGST has been deposited in the respective Government treasury by the vendor. This provision has been added to bring in tax discipline but smaller businesses may find transaction cost increasing due to this.
(f) Avoidance of Double Taxation: Presently, several transactions suffer VAT as well as Service Tax such as works contract or licensing of software. This could be resolved under the GST regime by redefining what is goods and service.
(g) Changes in the Accounting Software: Dealers and service providers need to modify/replace the accounting and taxation software. Initially there could be investment costs, costs of training in GST of people at each level starting from junior/mid to higher level managerial staff, management group/stakeholders.
(h) Training: Comprehensive training would be required to the staff members of the business community, both at senior level and also at junior level across the purchase, sales and finance functions. VAT + CE/ ST officers would also need to understand the law well.
(i) Competent Professionals: There are specialized consultants for Excise Duty, Service Tax and VAT. With the GST, only a single consultant maybe required who can handle all GST matters. Compliance for the SME may necessitate competent tax preparers.
(j) Amending existing contracts: Assessees have to incorporate an extra clause in the existing contracts to collect CGST and SGST as applicable.
Impact on Specific Sector
- 9 :Impact on Agriculture
1. In India, food items are generally exempt from central excise duty. But many food items, including food grains and cereals, attract State VAT at 4-5%.
2. The exemption under the State VAT laws is restricted to unprocessed food, e.g., fresh fruits and vegetables, meat and eggs, and coarse grains.
3. These items could be subject to tax in GST at a lower rate, which is likely to be 5% (combined GST rate), which, if so, would certainly make some of these items dearer.
- 10 Impact on Works Contract
Works contracts are composite contracts involving material and labour. The material portion involving the supply of goods is taxable to Value Added Tax (VAT), while the service portion is liable to service tax. If a new commodity comes into existence, in the process of executing a works contract, then, Central Excise duty may be levied. Under GST law, works contract could be taxed on gross value with ITC on goods and services being available. It would be considered as a service. It could be at 18%. Credit in respect of Steel, cement, electrical items would more than offset the present net tax in most States. More clarity is expected. Impact on Leasing Companies
1. At present, if there is transfer of right to use goods involving transfer of effective control and possession, then it is subject to VAT; otherwise, it is subject to service tax.
2. Under GST it would be a service.
- 11. Impact on International Trade
Importers of goods and services may be affected under the GST regime due to -
1. Change in tax rates leading to higher tax incidence when the goods or services are imported into India from outside India.
2. Exports of goods and services shall continue to be zero rated and eligible to claim refund of input tax credit which could be fast tracked. Impact on Pure sale of Land or completed building As they already attract stamp duty may be kept out of GST purview.
- 12. Other Impact
1. There are indications that certain 5 specified petroleum products namely Petroleum Crude, Motor Spirit(petrol), High Speed Diesel, Natural Gas and Aviation Turbine Fuel as well as electricity shall be outside the ambit of GST. In addition, tobacco would attract other taxes applicable in addition to GST.
2. At present products known as sin goods and luxury items are taxable not only at higher rate of tax but also subject to multiple taxes. Under GST they may be taxed at 28% + cesses.