Goods and Services Tax or GST is an indirect taxation system for the distribution of products and services that are used in India. GST came into force on 1 July 2017 as the Indian government finally implemented this much-needed taxation reform. It substituted several established taxes imposed by the state and central governments.
It is a detailed, destination-based, multi-phase tax structure and has effectively absorbed almost every other indirect taxes with the exception of some state taxes. The implications of this new tax system are significantly different for different sectors.
GST Impact On Manufacturers and Distributors
In reality, goods and services tax is rising productivity and efficiency in India’s manufacturing sector. However, decreasing exports, and also increased investment in infrastructure, are some of the worries in this market. Previously, there were several indirect taxes that raised the operating costs for producers and suppliers, but with GST in place, the enforcement pressure is relaxed and the industry is expected to expand more robustly because of this.
Businesses that were not formerly registered under any taxation system will now have to register and pay taxes accordingly after GST has been introduced. Consequently, GST often avoids the field of tax evasion.
GST Impact On Start-Ups
Previously, before GST, new companies had to deal with tax regulations, which limited the ease of conducting business. Because of the following interventions, the GST system is likely to be more convenient for startups:
- New businesses usually had to enroll with Service Tax Authorities, VAT Authorities, and other local bodies, increasing the pressure of regulatory compliance for startup companies. GST will eradicate numerous registration lines as a one-point registration tax. The process for GST registration would be standardized, thereby making it much easier to start a company in India.
- Upon registering for the GST, new start-up companies would automatically be qualified for input tax credits for all sales, including both-state and out-of-state. This will contribute to the growth of the interstate industry and to a reduction in the cascading tax impact. Total capital credit is received in one payment under the GST system, which would have a significant effect on the cash supply stream of new businesses since full input credits must be required for GST payments.
- The existing tax system will be simplified by GST since only one tax (GST) will exist for all indirect taxes. This will immediately lead to reduced tax compliance and inevitably results in tax procedures being simplified.
- GST is evaluated on the overall value: there is no difference among products and services, eradicating the need for complicated WCT formulas under the old scheme.
GST Impact On Providers Of Service
There had been more than ~12lac service tax assesses in India according to the March report published but only the top 50 ended up paying most of the tax collected nationally. Almost all of the tax is obtained from fields such as insurance, IT services, business services, telecom services, financial services, etc. Both of these Pan-India firms are now working in a single market and would see raising GST compliance burdens. The advantages that come with GST do entail an essential move on the part of the service provider, that they will have to declare each location of their company in each state independently.
Impact Of GST on E-Commerce
The eCommerce industry has grown rapidly in India and GST supports the continuing growth of the e-com industry. In several ways, the long-term implications would be especially important as the GST legislation incorporates a framework for collecting tax at source (TCS). E-commerce companies are not too pleased with TCS now, but the TCS rate is only 1%. Section 194-O recently adds a new provision outlining the applicability of TDS to e-commerce purchases/transactions.
Impact Of GST On Telecommunications
We’ve seen a bit of a decrease in price in this field too since the implementation of GST, but seeking the exact response is difficult due to the daily adjustments. In the telecommunication industry, however, prices have been declining for some time after GST. Manufacturing companies will save costs by managing inventories efficiently and by integrating their storage facilities. Likewise, selling their products or machinery would be much simpler for Handset manufacturers as the GST program has refused the necessity to set up state-specific agencies and move stocks that will eventually lead up to logistics cost savings.