GST means Goods and Services Tax. It is an indirect tax that subsumes most of the indirect taxes and benefits the taxpayers by decreasing the burden. This was implemented on 1st July of 2017. With the implementation of GST the burden of more number of indirect taxes such has VAT, CST, Service Tax etc. has reduced to a great extent. It also makes free from the cascading effect of that may lead in the increase of prices of the products i.e. Inflation. It was implemented not only with the objective of ONE NATION ONE MARKET but also to decrease the number of black money which is not possible in the previous system followed by the traders as this will put a check against the inward and outward supplies with registered as well as unregistered traders. By the implementation of GST the prices of basic needs have come down while the prices of the luxuries are inflated.
Here, we will see the sector wise impact with the implementation of GST.
In India agriculture sector plays a very dominant role in the economy and growth of the country and covers approximately 16% of Gross Domestic Product of the country. Dairy farming, poultry, stock breeding etc. are kept out of the purview of GST. Fertilizers, tractors, seeds are the main elements and their taxation before the implementation of GST is fertilizers were charged at the rate of 6% and they are included in the 12% slab of GST now. It was introduced with an motive of long run benefit farmers has to bear the increased prices keeping in view that the prices will decrease in long run. Milk is also a product of agriculture sector the tax charged on fresh milk is 0% while milk is segregated in to skimmed milk and condensed milk and the rate of tax charged under GST is 5% and 18% respectively. Tractors which are essential in the process of cultivation were charged under the slab of 12%. Introduction of GST will resolve the issue of transportation which is the major issue faced by the agricultural sector.
Impact of GST on Service Providers
Most of the tax burden is borne by domains such as IT services, telecommunication services, the Insurance industry, business support services, Banking and Financial services, etc. These businesses already work in a unified market and will see compliance burden becoming lesser. But they will have to separately register every place of business in each state.
The usage of mobile data has increased in India than that of US and China and the Indian telecom sector is the second largest in the world in terms of number of subscriptions. Under GST telecom services and products are charged at 18%. The tax charged before the implementation of GST was just 15% and with the implementation of GST it has raised by 3% which successively lead an increase in the mobile bills. The NEW TELECOM POLICY will be made by including the recommendations of Telecom Regulatory Authority of India and aims to look on the issues like regulating and licensing frameworks, providing increased quality of services and connectivity for all and make the running of business easier etc. In the telecom sector, prices will come down after the implementation of GST in the long run.
The impact of GST is more on the services sector than the manufacturing and trading sector. The financial services such as credit card payments, ATM transactions, fund transfer, processing fees etc. are charged under the 18% slab while these were previously charged at the rate of 15%. Every individual has to pay three more rupees for every hundred rupees paid as charge or processing fee. NEFT (National Electronic Funds Transfer) is a facility enabling bank customers in India to transfer funds between any two NEFT-enabled bank accounts on a one-to-one basis. It is done via electronic messages. RTGS means Real Time Gross Settlement. It is a system which is considered as specialist in funds transfer system. After implementation of GST the fee charged on NEFT and RTGS was increased. The premiums of insurance policies are also affected. Mutual fund earnings are exempted from GST up to Rs.20 lakh.
The e-commerce sector in India has been growing by leaps and bounds. In many ways, GST will help the e-commerce sector’s continued growth. But the long-term effects will be particularly interesting because the GST law specifically proposes a Tax Collection at Source (TCS) mechanism, which e-commerce companies are not too happy with. According to the section 43C (1) of Model GST Law says that an e-commerce operator is required to collect an amount of the consideration paid or payable to the supplier. The current rate of TCS is at 1%.
Insurance premiums such as term insurance premium, annual insurance premium, health insurance premium and car insurance etc. was charged at 15% before GST and charged at 18% on entire premium under GST. Tax charged for Unit Linked Insurance Plan (ULIP) is 15% before GST and 18% under GST and the tax is charged on premium less investment amount.
Impact of GST on Manufacturers, Distributor, and Retailers
GST is a boost for manufacturing sector. Multiple indirect taxes had also increased the administrative costs for manufacturers and distributors and with GST that burden of tax has eased and this sector will grow more strongly. This will lead to lesser tax evasion. The automobile industry in India is a vast business producing a large number of cars annually, fueled mostly by the huge population of the country. Under the previous tax system, there were several taxes applicable to this sector like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty which will be subsumed by GST. If the spare parts are manufactured by the company who produces cars or bikes then the GST is charged on the product at the rate of 28% and if the spare parts are manufactured by other company then the GST applicable is 18%. Before, GST cars and bikes were charged with a combined rate of excise duty and VAT at 26.50% to 44%. The pharmaceutical sector is hoping for a tax respite as it will make affordable healthcare easier to access by all. On the whole, GST is benefitting pharmaceutical and health care industries. Ayurvedic medicines get costlier as the rate of tax charged under GST is 12% while before GST the rate of tax was approximately 5%. Medicines that are used to cure diseases like malaria, tuberculosis etc. were used to charge a rate of 5% under GST and before it was charged around 4%. The Indian textile industry provides employment to a large number of skilled and unskilled workers in the country and it is the second largest industry that provides more employment. Supplies of fabric, cotton fibre, and yarn are charged at the rate of 5% and synthetic fibre, man-made fibre is charged at the rate of 18%. It contributes about 10% of the total annual export, and this value is likely to increase under GST.