India Joins the GST Club – What is The Fuss All About?

INDIA-ECONOMY-TAXATIONThis column is by Gaurav Bansal, Founder, Registrationwala

Rajya Sabha, the Upper House of Indian Parliament has passed the GST bill. To know what the fuss is all about, let’s understand our current tax system first.

The constitution divides taxation powers between center and states. Both levels of government have some exclusive areas where they can levy tax. However, central government holds one exclusive domain – income tax. Also referred to as Direct Tax.

Indirect tax refers to taxes on manufacturing and consumption of good and services. Here, the indirect tax on manufacturing is charged by the central government while the state governments levy the indirect tax on consumption.

As there are multiple taxes applied at every level and more so differently in every state, it increases the cost for everyone. In more simple terms, tax in India is too complicated for a consumer.

What is being done to simplify this system?

The Goods and Services Tax (GST) is being brought in place to simplify the tax system in India, which is considered to be the biggest tax reform since our Independence.

For this to happen, the constitution first needs to be amended to remove different layers of governments’ powers to levy taxes. Once this step is taken, the tax barriers between states, and center and states will disappear.

As a consumer, what is in it for me?

It means, that you will haul all your taxes at the point of consumption.

For example, while shopping if you are being levied tax at 18%, you will not be taxed further as this 18% will include the central and state government taxes.

Also, as the barriers between states will be removed, you will not be paying “tax on tax”, which is the current situation while goods are moved across state borders.

How will GST impact various sectors?

Assuming the current updates, if the GST is fixed at 18%, the following possible impacts may occur:

1. Banks:
Current service tax is 15%, after GST 18% – Negative impact.

2. Consumer Staples:
Current tax is 22%, after GST 18% – Positive impact for companies such as Asian Paints, Dabur, ITC, etc.

3. Consumer Discretionary:
Current tax is 15%, after GST 18% – Negative impact for Coffee Day, restaurant business, etc.

4. Media:
Current tax is 15% of service tax and 7% of entertainment tax, after GST 18% – Positive impact for Dish TV, Videocon, etc.

5. Telecom:
Current tax is 15%, after GST 18% – Negative impact, might face marginal dip in consumption.

6. Auto Industries:
Current tax is 27%, after GST 18% – Positive impact for Maruti, Bajaj, Eicher Motors, etc.

7. Metals:
Current tax is 18%, same as after GST i.e 18% – No major impact.

8. Cement:
Current tax is 27%, after GST 18%; a positive impact on this sector – Positive impact for Ambuja Cement, Ultra Tech, etc.

9. Pharma:
Current tax is 15%, after GST 18% – Negative impact.

10. Real Estate:
Current tax is 15-16% stamp duty, after GST 18% – No major impact.

When will this GST be in effect?

Once the GST details are worked out, the GST rates will be fixed. Hence, once the constitution is amended, the center and states have to pass the legislation, which gives out GST details. Eventually, this will get pass downed to subordinates for further procedures.

The amendment will be followed by the structuring of GST, which we as consumers, hope will the best economic reform of our times. Thus, making India a member of GST club of 166 countries.

About the Author:

Gaurav Bansal is the founder of Registrationwala, an online platform for all types of business registration and management services. A Commerce graduate from Delhi University and a Chartered Accountant by profession with experience of over five years in the field of corporate laws, taxation, business advisory services and FEMA matters.

Disclaimer: This column is powered by Registrationwala

Image Credit: Times of India

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