Will food products become dearer? Will Land and Real estate be kept under GST? Will Service providers be happy with GST? How Manufacturers would be affected? What’s going to be in case of Works Contracts? How Power and Telecommunication sector be adversely affected? What about International Trade? Whether it will be zero rated or taxed?
This article will elaborate us the impact of GST on our Key Sectors / Industries. Let’s go through these specific sectors of Indian Economy and understand how each sector will be affected with the introduction of GST.
Presently in India, most of the food items are exempt from CENVAT. Still then, there are some food products, including food grains and cereals, which are covered under State VAT @ 4% in many states. State VAT exemption is limited to only unprocessed or raw food e.g., fresh fruits, vegetables, meat, eggs and coarse grains. As far as Delhi is concerned, no such levy is there.
When GST will be levied, combined rate would be 8% on food items. This clearly brings out that these items will be dearer by nearly 4%. There is no point in exempting food items totally as it will have adverse impact on Revenue Neutral Rate (RNR).
CST ACT will be abolished totally from India. No question of sale or purchase against Form C. Inter State transactions which presently attract minimum 2% of the purchase price will be zero rated. The Traders will be saved from this additional tax burden.
Presently, CENVAT is levied and administered by the Union Government. Rates of tax are uniform and no complications are seen in goods movement within the country. Threshold limit under Excise duty is Rs. 1.5 Crores.
With GST rollout, tiny sector and household industry will be adversely affected. States will administer Central GST of dealers with turnover below Rs. 1.5 Crores. This means present exemption will be gone for manufacturers.
Under GST, valuation of goods for levy of GST will be based on sale consideration. Purchasing of Capital goods from other states against Form C will be banned. No question of availing concessional rate will remain in force.
4. WORK CONTRACTORS:
Under the current provisions, works contracts attract three different duties. First is VAT on supply of goods. Second is Service tax on service element. Third is Central Excise Duty if a new commodity comes in existence in executing works contract.
It is quite clear that it is not easy to tax works contract. There are certain specific provisions and various rules in law for bifurcating goods and services element in this regard. Still lots of confusion and legislative compliances to go.
Under GST, goods and services both are treated at par and taxed at a uniform rate. GST will subsume sale of goods, provision of services and manufacture. GST will have a simple structure. No more confusion will remain.
One more point is that goods fabricated at site presently attract VAT or Service Tax. No CENVAT is levied. So, the contractors are required to pay maximum 12.5% which will be greatly affected in GST and might go upto 16-20%. Thus, additional burden for nearly 4- 8% will be created.
5. POWER SECTOR:
Although electricity is goods yet it is free from sales tax. Therefore, no sales tax is levied. The basic impact will be on purchase of goods by Power sector for generation and distribution of electricity from other states which is currently 2% under CST.
Abolition of CST will certainly affect this sector unless sale of electricity is brought within scope of GST and set off of input tax credit is allowed for tax paid on purchases.
GST will not have a major impact on this sector. Like power sector, Telecom Companies also purchase goods for telecommunication from other states at a concessional rate which will go away with GST.
With the integration of Service tax and VAT under GST, controversy will be resolved with regard to confusion under composite transaction like sale of phone with talk time.
7. INTANGIBLE GOODS:
Taxability with regard to transfer of Intangible goods like software, intellectual property rights and goodwill will become clear under GST. Controversies will be resolved to a great extent.
8. LAND AND REAL ESTATE:
Till now, it is not clear whether land and real estate would fall within the ambit of GST or not. But many advanced nations are treating housing and construction activities just like a commodity and is subjected to VAT.
Poddar-Ahmad Working Paper has suggested including land and real property under GST. It is therefore suggested not to exclude this sector as it would lead to unnecessary disputes and tax cascading as well.
One view is that since this sector already attracts stamp duty, so exclude it totally from GST. But purpose of stamp duty is quite different from GST. Stamp duty is a cascading tax on each conveyance of title to real property while GST is tax on final consumption. Both are not substitutes in any sense. So, inclusion of real estate is appropriate.
But still the structure should be rationalised and rates to be lowered if GST is to be applicable in the real estate sector.
9. INTERNATIONAL TRADE:
GST will affect Importers in the sense that exemption which is available to them for High-seas sales under the CST Act will be withdrawn. Not only this, they will also be affected by change in tax rates.
Exports will continue to be zero rates and refund of input tax credit will be available to them. No major impact on Exporters.
10. PETROLEUM, LIQUOR AND TOBACCO PRODUCTS:
Presently, these goods are taxable at a higher rate of tax and multiple taxes are also levied on them. But these will be kept outside GST and therefore Government revenue will fall greatly. Manufacturers will also suffer cascading effect of taxes since they will not be entitled to claim input tax credit.
Services which are currently taxed at the place of rendering will be taxed at the point of consumption under GST. This clearly shifts the base of service tax from service rendering state to service consuming state. More services will be added to the GST regime and exemptions will be withdrawn. Classification disputes will also be resolved to a great extent.
The exact impact of GST can’t be guessed presently. It would be quantified once the GST ACT is finalised. Which sector will gain or lose will depend upon the tax schedules, final GST rates and the laws that will be framed subsequently. Be ready for GST.....whether you like or not!!!!
CA. Neha Gupta
B.Com, ACA, AIR (Final) 36
LNG & Associates