Impact Of GST

The implementation of GST has surely had an effect on various different sectors in the country. But one impact of GST which outshines the other, is the successful execution of the ‘one nation, one tax’ policy. This tax was implemented keeping in mind the effect it will have on the common man.  The onset of the GST act meant a rapid shift and flurry of changes for the taxpayer and players in almost all major industries. In this article we will talk about GST and, and the impact of GST on different sectors.

GST Impact Analysis: Effect and Opinions

Short Term Impact of GST

In terms of what effect GST has had on the common taxpayer, the results have been somewhat concerning. Owing to the new tax structure, end consumers now have to pay a higher tax rate on most of the essential goods and services they use. This is so because most of the common day commodities for the average citizen, are now taxed at a slightly higher rate. Further, the effect of GST on business can be called a little prohibitive, owing to the considerable compliance cost attached and a number of clauses which have been protested against.

Future Effect of GST

In this section, we will take a look at the long term  impact of GST on Indian Economy. GST was implemented with the vision of introducing a unified tax system along with the general lowering of taxes. The GST tax structure dictates 5 different slabs with 3 prevailing taxes. These taxes have been purposely increased in order to make up for the loss of revenue. Which means that a shift from this rate seems highly unlikely anytime soon. Further, the government has also announced its intention to revise the existing rates once the Revenue Neutral Rate has been achieved.

Moreover, the Government expects that the revenue collected from taxes is sure to increase due to an extended tax net. The fiscal deficit is also expected to remain under check. Another expected positive impact of GST is that exports are more likely to increase, while it is sure to attract more Foreign Direct Investment (FDI).

Impact of GST on Indian Economy

In order to understand how GST has affected the Indian economy, you need to have a firm understanding about the concept of GST application and its types. GST is charged on every stage of production and distribution of goods and services all over India. The three types of GST are as follows:

• Central Goods and Services Tax(CGST): This is the tax levied by the Central government in regards to the inter-state sales of goods or services
• State Goods and Services Tax(SGST): tax levied by the State Government on intra-state sale of goods or services
• Integrated Goods and Services Tax(IGST): this is the tax collected by both the State Government and Central Government on the supply of goods or services from one state to another

Let’s take a more in-depth look at the impact of GST on Indian economy:

Simple Tax Structure

Before the advent of the GST tax structure, multiple taxes like VAT, custom duty, excise duty, etc were levied on every transaction. Further, a lot of complicated compliance and return filing guidelines were associated with each of these taxes. With the implementation of the Goods and Services Act, the tax structure of our country was made much more simpler and organised. This can be considered as a positive impact of GST, as the taxpayer now has  a better understanding of the tax paid during the purchase of any goods or service.

Increase in Funds

One of the positive impact of GST on the Indian economy is the fact that there has been a noticeable increase in the funds meant for production. This is so because there has been a considerable reduction in the taxable amount. This reduction has led to a savings created which can then be used for additional production processes.

Impact of GST on Business- Small and Medium Sized

Another noteworthy impact of GST on different sectors has been the calculation of the tax payable based on the average turnover of the firm. It is important to note that this is applicable only if the firm is registered with the Composition Scheme as dictated by the GST act. The new tax system dictates that companies clocking in an annual turnover of more than ₹ 50 Lakh are taxable by GST at a rate of 6%. Firms who have annual turnovers exceeding ₹ 1.5 Crore are liable to be taxed at 1% GST rate.

Increased Exports

This impact of GST on Indian economy has been one of the more important desired effects of the Goods and Services Tax. With the implementation of the new tax regime, there has been a decrease in the custom duty paid while exporting products. This means that many manufacturers and businesses can now save money on the production of goods as well when exporting them to overseas customers.

Removal of Cascading Effect of Tax

Before the introduction of the GST tax system, we used to face a problem referred to as the cascading effect of tax. The implementation of GST and its impact has ensured that this problem has now been successfully dealt with. In the pre-GST era, all the different taxes and associated formalities meant an enormous burden on the taxpayer. Even though in the new tax system, it looks like a higher tax rate is being paid, the reality is that it actually helps in avoiding various other hidden charges.

Impact of GST on Real Estate Sector in India

The effect of GST on real estate sector has been quite evident for everyone to see. Right now, the real estate sector remains one of the top contributors to the Indian economy, with an 8% contribution to the GDP. Before the GST came into effect in India, if you were to buy an under construction property, you would have to bear a number of related expenses like VAT, registration charges, service tax, and stamp duty charges. In the case of purchasing a completed project, then the related charges were only for registration charges and stamp duty.

One of the effect of GST on property market is that the amount paid on the purchasing of under-construction projects was vastly reduced. The impact of GST on real estate sector has been greatly beneficial to builders/developers as, now they can claim input credits on the tax they paid on goods/services that were delivered by them. This liability can now be passed on to potential buyers. Let’s take a look at the different aspects of the impact of GST on real estate:

How will GST Affect Resale Properties for Buyers?

There is no noticeable effect of GST on property for resale. This is so because finished/reseal properties fall outside the tax umbrella of GST. The GST is levied on the movement of Goods/Services only. As dictated under the act, sale of a completed flat is considered as a sale of immovable property, which is not taxable by GST laws.

Impact of GST on Flat Registration

Even though GST has successfully subsumed various different taxes under one central tax, stamp duty and property registration charges were the two factors that were left out. Which means that the sale or purchase of property in India is still liable to be charged with stamp duty and registration charges. The important thing to note is that no GST will be levied during the registration of property. This is one of the most important effect of GST on property.

Impact of GST on New Flat Purchase

Even though the involvement of a number of different taxes did not have a massive effect on the price of the property, it sure had a long and complicated process which made everything painstakingly tedious. Further, a lot of homebuyers discovered that more often than not, the total of all the taxes did not equate with the final price of the property, Even though GST has faced starting problems, the effect of GST on property remains that it provides the buyer with added transparency.  Owing to this impact of GST on real estate sector, homebuyers now have more confidence about the taxation on the sale/purchase of property. Moreover, even a slight decrease in taxation rates might mean a decrease of price of property:

GST calculated on Affordable Housing Flats purchased

GST calculated on Luxury Flats purchased

Impact of GST on Home Loan

In order to get a clear picture of the effect of GST in home loans, you must first understand other factors like GST on interest, and EMI. The effect of GST and its impact on this sector can be clearly seen in the increase of service tax. While earlier the service tax was 15%, now the service tax stands at 18%.  This tax rate is also applicable for processing charges and various other charges associated with home loans. Generally, the processing fee is around 0.25% to 1% of the loan amount.

Impact of GST on Construction Material

The introduction of the GST system has meant an increase in the prices of construction materials. This can be attributed to the increase in the rate of taxation. In accordance with the GST guidelines, manufacturers having turnover of more than ₹ 75 Lakh are eligible for tax exemption. Thus, initially the effect of GST would be seen in terms of increase in cost of materials for construction.

Impact of GST on Automobile Sector

It is widely accepted that the implementation of GST has had a positive impact on the automobile sector. While talking about the positive impact of GST on this sector, you cannot ignore the fact that the tax paid by automobile manufacturers has been greatly reduced, which in turn also benefits the buyers.  In this section, we will talk about the impact of GST on the automobile industry.

Reduction in Operational Cost

When the GST was brought into effect, it did away with the need for Central State Tax, which was previously applicable on interstate sale. In the new regime, automobile companies do not need to maintain multiple warehouses in different states. They can now operate by joining warehouses and in turn enjoy lower operational cost. Further, other related costs like promotions and advertising are now covered under input credit tax, which ensures further decrease in operating costs.

Effect on Working Capital

Even though the automobile sector benefits from the lowered operational costs under GST,  dealers are now concerned about GST and its impact.

This is so because, anytime any vehicle is transferred, capital is locked and GST is applied as the supply is deemed taxable as dictated in the GST act. This means that now the dealer is required to pay GST on the same day of receiving advance. Although, this will also make the dealers more cautious as any discrepancy in this process can hamper their cash flow.

Cash lock-on free services is another way the GST will affect automobile dealers. It is usually the norm for many dealers to provide warranty cards or free services while selling the car, in forms of customer benefits. The dealers are required to pay GST on these during the time of issue, while the customers may redeem these services at any point of time.

Impact of GST in Automobile Rates

The GST taxation rate on automobiles is usually calculated with a base rate of 28% on all cars with additional cess slabs. Now let’s take a more in-depth look at GST rates in the automobile sector:

1. Two-Wheelers: Two-wheelers in India having an engine capacity of 350 cc or lower are taxed at 28%. Vehicles having an engine capacity of more than 350 cc are taxed at a rate of 31%.
2. Commercial Vehicles: Almost all commercial vehicles are taxed at 28%, which was previously 30.2%. However, minibuses which fall in the 15% cess slab, are taxed at 43%. While most commercial vehicles haven’t really been affected by GST, the raising of taxes on 13 seater minibuses has been slightly concerning.
3. Luxury Cars: The implementation of GST has had a positive impact on the luxury cars scenario. This is so because while previously luxury cars were taxed at 50%, they are now taxed at 42% to 45%. Which means that the tax for luxury cars has been greatly reduced.
4. Small Cars: There has not been any significant effect of GST on the small cars scenario. Before the GST, the taxation rate was 29% including all related taxes. Now after the GST, the taxation rate is 28% and involves 1% cess.
5. Hybrid Cars: The effect of GST on the automobile sector can be seen most clearly in the hybrid cars sector. These cars are now taxed at 28% with a 15% cess, where previously they were taxed at 30%.
6. Spare Parts: One can say that the spare parts section of the automobile industry has faced the major brunt of the inverse effect of GST. While earlier spare parts were taxed at just 2%, they are now taxed at 28%. This means that the current tax rate is more than double of the previous rate.

Impact of GST on Different Sectors

In this section, we will take a look at the impacts of GST on business in different sectors all over the country:

Logistics

In a vast country like ours, logistics is one of the key contributors to the overall betterment of the economy. Under the implementation of GST and the ‘Make in India’ banner, the logistics sector has seen the positive impact of GST as it has become more organized. The reduced costs and compliance regulations mean that this sector can now grow exponentially.

E-commerce

With the implementation of the new tax system, the ecommerce sector has the potential to grow rapidly. However, companies will now have to deal with TDS (Tax Deducted at Source), which can become a detrimental factor in the future.

Pharmaceutical and Health Sectors

The pharma industry and health sector is more likely to have a positive impact of GST because of the all new simplified tax structure. Further, it also receives a tax respite in lieu of making healthcare more affordable and easily accessible to people of different income groups.

Textile Industry

Textile is one of the largest industries in India as it employs a massive number of skilled and unskilled labor. Further, the textile industry accounts for 10% of the total exports of India, which is now set to increase even more, due to the removal of custom duties on exports. GST has also impacted the price of cotton, which is one of the most widely used raw materials in the textile industry. This is one of the positive impact of GST on the textile industry of India.

Farming and Agriculture

With more than 16% contribution, the agricultural sector is the largest contributor to the GDP of our country. The introduction of GST has meant an ease of logistics, which in turn means that there has been a reduction of transportation costs for agricultural products. Thus, this can be considered as a positive impact of GST on the farming and agriculture sector.

Startups

Many Indian startups have truly taken advantage of GST and its impact on the Indian economy. Many of these businesses have taken advantage of various perks like a free flow of goods and services, DIY compliance models, increased limits for registration, and input tax credit on purchases.

YOU MAY ALSO LIKE

Frequently Asked Questions (FAQs)