CRISIL RE­SEARCH TOOK A LOOK AT WHAT THIS MEANS

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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

play­ers:

SEC­TORAL IM­PACT:

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.

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