CRISIL RESEARCH TOOK A LOOK AT WHAT THIS MEANS
Heralding transparency, reducing the cascading effect of taxes
GST is expected to bring uniformity in taxation and reduce its cascading effect leading to cheaper goods and services. Currently, excise and value-added tax (VAT) cannot be offset, so they cascade. In addition, VAT credits cannot be carried across states. Both these characteristics would change under the GST regime. A dual-structure is on cards where the Centre would levy and collect the Central Goods and Services Tax (CGST), and states would levy and collect the State Goods and Services Tax (SGST) on all transactions within a state. The states will be able to fix their SGST rates above the floor rate, but within a narrow band. Input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Ditto SGST. No cross-utilisation of credit (across CGST and SGST) would be permitted. The Centre would levy Integrated Goods and Services Tax (IGST) on inter-state supply of goods and services, which might be a combination of CGST and SGST. As for IGST, interstate sellers can avail of input tax credit. The proposal for additional tax of up to 1% on the supply of goods to be levied on inter-state trade for 2 years is on its way out, which will reduce its cascading effect and maximise the benefits from GST. As per the Constitution Amendment Bill, all goods and services (except alcohol for human consumption) will be brought under the GST purview. While petroleum/petroleum products have been included in the framework, GST would be levied only upon the Council’s recommendations, implying that present taxes (excise duty, sales tax, CST) would continue to be levied on these products. For tobacco and tobacco products, taxes imposed by the Centre would be levied over and above the GST.
IMPACT ON INDIA INC:
1. Prices of goods to decline, cost of services to increase, exports to get a boost 2. Better operational efficiency due to improvement in supply
chains: 3. Narrowing differentials between unorganised and organised
IT Services – Marginally Negative IT companies at present have a relatively simplified tax regime wherein, there is a single point of taxation which is the central service tax. Under the new GST regime, there is not much clarity on the slab applicable to the IT Companies and compliance might come under Central GST (CGST), State GST (SGST) and Integrated GST (IGST). This could lead to multiple taxation points, which will lead to increased costs for players as invoicing will now cost more. On the hardware front, movement will become smooth. Currently, duty on manufactured goods ranges from 1415%. A rate less than this would reduce costs for certain hardware components.
E-commerce is neutral
Bill is expected to bring some clarity in online business. It will also open new markets for online players who face complexities of entry tax and other processes while entering in specific states. E-commerce players have large number of sellers listed on their platform. These sellers will have cash-flow issues as they will have to claim refunds for tax paid on inputs , which e-tailers will not be able to account for. Thus, this will increase the compliance burden for e-commerce players. Further, any payment made to a supplier would be subject to tax collected at source at the notified rate. This might create a rift between sellers and e-commerce companies.
Telecom Services – Marginally Negative
The mobile bills for both prepaid and postpaid subscribers may go up if the rate for GST is set above 15% (the service tax (including KKC and SBC) currently paid for the mobile bills). Also, the way in which telecom circles are classified is not aligned with the geographical boundaries for some of the states and UTs. For e.g., MP telecom circle also includes the state of Chhattisgarh; Delhi circle includes neighboring cities of Noida and Gurgaon which fall in the geographical boundaries of UP and Haryana respectively. If different rates are imposed by such states, the price of a prepaid pack will vary across different regions in a same circle, leading to pricing discrepancies and consumer complaints.
Renewable Energy - Negative
• Implementation of GST, assuming 18% rate, will increase solar power project cost by 13-15% • Solar modules, which account for 55-60% of total capital cost, and are largely imported, there exists no customs duty. Also, VAT and other levies like entry tax and excise duty, which together are ~5% currently, will increase to 18%. • However, given strong government thrust to promote renewable energy; the GST Council could exclude / provide a concessional rate renewable energy from the regime.