What are the Benefits of having GST in Place?

 What are the Benefits of having GST in Place?

GST has come in force from 1st July, 2017 and the returns are soon going to roll out and pave the way for a uniform and systematic reporting system that is seldom found anywhere else. This transaction wise, destination-based reporting system provides for a much effective credit flow, removes chances of corruption and illegal transactions, as the entire system will be centralized and automated

In a quick view, these are the benefits of GST which we will be discussing in details in this chapter.

BENEFITS OF GST

Tax Booster for Government

Abolition of multiple layar of tes

Mitigation of Taxation

Reduced Litigation

Development of National Market

Administration by Government

Increase in Compliance

Seen as one of the biggest tax reforms (in terms of indirect taxes) since 1947, GST is set to bring forth unprecedented transformation of the country from a political union to an economic union of 29 states and 7 union territories. Under this fabled tax system, existing in developed countries such as France, U.K and Canada, the tax payers in India will pay a consolidated tax instead of the plethora of taxes such as Value-Added Tax (VAT), Central Excise, Service Tax, Entry Tax or Octroi, Customs Duty, Central Surcharge & Cess, Luxury Tax, Entertainment Tax, and Purchase Tax and a few other indirect taxes. Thereby helping to consolidate, streamline and make easier and more effective the process of indirect taxation

GST will be payable at the final point of consumption on the price of goods and services; termed as a "transaction value. This transaction value or actual paid price, while buying the good or service, will include packing cost, commission, and all other expenses incurred for their sales. To start with, the GST Council has finalized four tax rates slabs of 5%, 12%, 18% and 28% for goods and services. Education, healthcare, milk products and alcohol will continue to be exempted from tax in the upcoming GST regime. Similarly, gold and rough diamonds do not fall under the current rate slabs and will be taxed at 3% and 0.25% respectively.

Prior to implementation of GST, for example entrepreneurs having business interests in seven states would have to deal with seven different tax authorities along with seven different tax rates in value added tax (VAT) paid by them. However, while filing for GST, they have to execute only two types of registration, one for State-GST and another for Central-GST. Also, with GST all states in India will have the same tax rate, which will bring down the logistics costs for many businesses. Thus at this juncture the Indian startup community stands to gain considerably from the implementation of GST.

For young entrepreneurs, GST is an out and out good news. Here are four key ways in which Indian startups will benefit from the new system.

1. MAKING IT EASIER TO DO BUSINESS

GST will bring about a uniformity in process and centralized registration that will make starting a business and expanding in different states much simpler. Since startups lack the resources to hire tax experts or a dedicated team for handling varied forms of tax compliance, GST's objective is to simplify the tax regime by reducing the multiplicity of taxes. This will not only bring compliance costs down but also make taxation transparent with digital tax processing. The Do It Yourself (DIY) model will enable startup founders to complete taxpayer registration, tax return submission, tax payments, and claim refunds online, thereby saving money for all sorts of enterprises irrespective of sector.

2. REDUCTION IN LOGISTICS COST AND TIME TAKEN ACROSS STATES

GST will ensure that interstate movement becomes cheaper and is less time consuming, by eliminating small border taxes and resolving check post issues. This will inevitably reduce the costs associated with upholding high stocks, as there will be a smooth movement of goods. As per a CRISIL analysis, GST can reduce logistics costs of companies producing non-bulk goods (comprising all goods besides the primary bulk commodities transported by railways coal, iron ore, cement, steel, food grains, fertilizers) by as much as 20%.

3. HIGHER EXEMPTIONS TO NEW BUSINESSES

GST also introduces an optional scheme called the composition scheme, which empowers small businesses with turnover between $30,000 and $77,000 (Rs 20 and 50 lakhs) to pay lower taxes. This will bring respite from tax burdens to newly established businesses. Earlier, as per the Value Added Tax (VAT) structure, any business with a turnover of more than $7000 (Rs 5 lakh) was to get VAT registration. Under GST this threshold for registration has been increased to $30,000 (Rs 20 lakhs), thus providing respite for founders of many startups and small businesses.

4. FINANCIAL INCLUSION

In the long run, GST will enable financial inclusion in the economy. With the startup community migrating towards digital book-keeping and optimizing existing processes, they would be better predisposed towards fulfilling the eligibility criteria for credit facilities by banks and investors in India and abroad. Furthermore, FinTech organizations will find have easy access to the young and fast-growing ventures digitally, and extend them the line of credit needed to establish and grow their businesses.

In addition to these accruing benefits, a CRISIL analysis report states that GST is going to play an intricate role in boosting country's GDP and reducing fiscal deficit. It creates a win-win situation both for the government and the tax payers. Notwithstanding speculations and the initial teething problems, GST appears to be a promising radical reform that ensures reduced costs and a streamlined economy; elements that are essential to guarantee success, to lift the spirits and to empower Indian entrepreneurs.

Here are some of the major overall benefits that GST brought with its implementation:

Aptly known as transparent taxation system, which is a replacement for all the indirect taxes going so far, GST is the most effective reform brought to surface by government. With GST, every customer will get to know the exact tax amount he is paying on buying goods and services, and there will be a sense of relief amongst masses

With GST in place, there will be no hidden taxes, as no additional taxation cost will be levied upon retailers who are registered and also the cost of conducting the businesses will reduce substantially.

Absolute Indian market will be unified and can be seen as a united business platform, encouraging the foreign investors to come in

GST will boost economic growth resulting in a rise in nation's overall wealth.

Tax rate on necessary commodities like gas, oil, water, electricity etc will lower down.

In India, GST will follow Dual System, wherein Central GST and State GST will be charging same manufacturing cost and will be collected on point of sale only. This in return will help end consumers, as prices will fall down, consequently boosting the consumption of goods which is a major uplift for industries.

What are the On Ground Differences, Pre and Post GST In the Nation?

Every nation has certain landmark moments that change the course of its history and ensure nothing remains the same there, ever. The liberalisation of Indian economy in 1991 was one such event that opened up the floodgates of Indian economy for the entire world and gave wings to the common man to live a life one is capable of. The entire world reached out to us and helped us get assimilated in the global economy. This resulted in the growth of now-so-famous massive middle class of the country, which is contributing healthily in the economic growth of the nation

Implementation of GST from 1 July, 2017 is another of such milestones that's changing how we Indians do business and how the taxation policy's face will change forever. Even though the reforms of 1990's brought financial independence, the way of doing business didn't change much and left a lot to be desired, A lot of unethical practices were part of doing business and newer and fresher ways were devised to evade taxes and indulge in generating black money. Introduction of GST is the first step in bringing uniformity in paying taxes, erasing dubious business transactions and contributing significantly to the GDP growth of the country

Before going into the specifics, let's look at some of the structural changes that have taken place since the time GST was launched:

1. Inclusiveness. As the GST works on the basis of input tax credit and the guidelines indicate every business with an annual turnover of Rs. 20 lakhs to be part of GST, it has ensured that almost every business entity has registered itself. Out of the total of 72.33 lakh taxpayers, 58.53 lakh taxpayers have migrated to GSTN and the remaining ones are in the process of doing so.

2. Organised Business: The infamous 'parchi system of doing business instead of generating legal invoices is dying a natural death. Right from kirana stores to other business establishments, everyone is liable for each other's tax responsibility and are invariably becoming part of the tax-payers chain.

3. Efficiency: Even though initially there was a lot of apprehension about the new tax reform, technology has made it an easy and efficient process. Manual work has been reduced and everything can be done online. After teething troubles and with government's timely intervention, the entire process of filing returns for GST is undergoing a change to make it easy to file returns.

4. Organised Data And Transparency. Every participant in the production of a product/service is now obliged to file returns online. This not only means that entire data is stored online and makes things. easier to track, but it also brings in transparency Now, there can't be any "back-dated" changes in Invoicing or duplication of information.

5. Revenues: GST is a step towards generating more revenues and the robust tax filing and tracking mechanism just ensures that only. It plugs any leaks in the entire chain resulting in higher revenues by ensuring everyone pays their share of taxes instead of a select few industries bearing the brunt of taxes. A testament to this is growth of 41.79% of advance personal income tax collection as on August 5 over the corresponding period in FY 2016-17. Also, personal income tax under self-assessment tax (SAT) grew at 34.25% over the corresponding period in FY 2016-17.

6. Short-term Changes: Initially, the prices seem to go up and even the cost of compliance is higher for those, who never filed returns or taxes. However, in the long run, the prices are bound to come down and the entire economy will benefit.

These are the broad level changes that happened post-GST launch in the country. However, to understand the ground level changes, we need to look specifically at the following sectors

1. Footwear & Apparels/Garments: Any footwear costing above Rs. 500 will now be charged a GST rate of 18%, up from 14.41%, while footwear costing below Rs. 500 will attract a GST rate of 5% When it comes to ready-made clothes, the rate has come down from 18.16% to 12% thereby making them cheaper.

2. Taxi Rides: Booking cabs online will now attract a tax rate of 5% instead of 6% earlier. This might look slightly less, but for long and routine journeys, the savings might turn out to be substantial.

3. Train Tickets: Local train tickets or sleeper class fares will remain same. Effective tax rate has increased from 4.5% to 5% in GST, but business travellers can claim input tax credit and reduce expenses.

However, those traveling, first class will have to pay more. 4. Cinema Tickets: Movie tickets costing under Rs. 100 will now attract a GST rate of 18%, but those costing above Rs. 100 will attract GST of 28%.

5. Life Insurance Policies: GST component on life, health and general insurance policies has been increased. This means that premium on the policy towards term and endowment has increased as well.

6. Jewellery: GST has been increased on the jewellery. On gold, there is a GST of 3% and the making charges will attract a GST of 5%. Earlier 2% was charged on gold.

7. Real Estate: The properties still undergoing construction have turned to be cheaper than ready-to-move-in properties. Even though the GST on under construction property is 18%, effective rate turns out to be 12%. This is because the builder is able to claim input tax credit and reduce the overall cost and pass on the benefit to the buyers.

8. Hotel Stay: Hospitality industry will benefit from GST as the room rentals under Rs. 1000 have been kept out of GST ambit. However, for room tariffs above Rs. 5000, the GST will be levied at 28%.

9. Cars: Except hybrid cars, most cars have becomes slightly cheaper and that says about their increasing sales. GST is uniformly applied at 28% on all cars irrespective of their make, engine or model. However, additional cess is levied over and above this 28% at the rate of 1%, 3% or 15% depending on the car segment.

10. Eating Out: The government has marked different GST rates for different restaurants. For AC restaurants and 5-star hotels, GST will be charged at a rate of 18%. For Non-ac restaurants, GST has been fixed at 12%. However, for small dhabas, hotels and restaurants with an annual turnover of less than Rs. 50 lakhs, GST has been fixed at 5%.

11. Cable services and DTH: Payments for cable services and direct-to-home connections have come down as GST is now fixed at 18%. The earlier taxes including entertainment tax were in the range of 10-30% apart from service tax of 15%.

12. Amusement Parks: Enjoying at amusement parks just got costlier as GST has been fixed at 28% from an earlier tax rate of 15%.

Apart from all the positive changes that are expected in the Indian Taxation System, GST is going to bring down the costs and will make life easier for all.

Here is a clear example of on ground differences, pre and post GST.

The comparison is for a product being sold from Mumbai to Nagpur, before GST and after.

The above flow of cost and taxes clearly explains the cut down in cost to the end consumer. This applies to all products

Also, if you visit a restaurant or a cafe now that the Goods and Services Tax (GST) has been rolled out, the break-up of your bill will look different than it used to before GST

GST, which has come into effect from July 1, 2017, has subsumed 17 indirect taxes and 22 cesses which were at different rates across different states.

Earlier a normal restaurant bill used to show a plethora of taxes which were charged by the state (VAT/sales tax) and the central government (Service tax) in addition to the service charge levied by the restaurant owners

This is how a pre GST restaurant bill looked like:

XYZ Restaurant

Particulars

Shahi Paneer

Butter Naan

Cold Drinks

TOTAL

Service Charge @ 10%

Service Tax @ 14%

24.64

KKC @ 0.5%

0.88

SBC @ 0.5%

0.88

58

VAT @ 14.5%

TOTAL AMOUNT PAYABLES 

524.4

Price

300

50

50

400

40

Here's what a post-GST restaurant food bill looks like

XYZ Restaurant

Particulars

Shahi Paneer

Butter Naan

Cold Drinks

TOTAL

Service Charge @10%

CGST @9%

SGST @9%

39.6

TOTAL AMOUNT PAYABLE

39.6

519

Price

300

50

50

400

40

The difference in the bills are clearly seen.

Hence, it can safely be said that there is a plethora of difference between the state of the economy pre and post GST and the impact is clearly felt on the ground level. The common man has more or less adjusted to the changed taxation somario and going forward with more positive changes, everyone in the country will have an equal opportunity to enjoy the fruits of this favourable tax regime.

How does GST Affect Various Industries and Trades In India?

GST implementation in the country has covered the entire gamut of trades and industries. Nothing remains untouched or unaffected by it and in turn is affecting the common man in many ways.

To get a better grip on the subject, let's have a look at various sectors and the impact of GST on each one of them

1. NGOs and Charitable Trusts: Broadly speaking, as long as an NGO or a charitable trust is provide

free services and meeting the pre-designed criteria for such services, they will be outside GST. However, If they charge money for any services provided like yoga activities or training camps or sell any goods, they will be liable to pay GST

2. Rentals: If you have rented out your premises for residential purposes, you'll be exempted from GST. Also, if the property is leased out for commercial activities, GST will be applicable, but only if the annual income from rent crosses the threshold limit of Rs. 20 lakhs and above.

3. Shipping Charges: As per the rules governing the GST, shipping charges will be applicable as per the GST applicable on individual products. For example, if a product attracts GST of 5%, then shipping charge will also attract GST of 5%. Similarly if GST on the goods is 18%, shipping charge shall also be the same. Also, certain products are kept out of the GST while transported such as milk, rice, agricultural produce, organic manure, defence equipment and the likes.

4. Gold: Prior to implementation of GST, the tax on gold as 1% service tax and 1% as VAT, amounting to a total of 2%. However, post-GST, the tax applicable on gold is now 3%! When it comes to gold making charges, GST applicable is 5%,

5. Goods Transport Agency (GTA) Under GST: GTA is any person that offers services to transpon goods via road and issues a consignment note. Issuing consignment note is most important here to be considered a GTA as it means that the lien on goods has been transferred to the transporter, who will be responsible for the goods till its safe delivery to the consignee. GST is applicable on GTA, but varies from product to product. It ranges from nil for essential items and other products marked by authorities to 5% with no Input Tax Credit (ITC) and 12% with ITC

6. Cab Services: There is a decrease in fare after implementation of GST of 5% without input tax credit. It will be applicable on radio taxis and AC buses while metered taxis and auto rickshaws an exempted from GST.

7. IT Sector: Items used in the IT sector like printer, photo copying, fax machines and ink cartridges will attract GST of 28% against 18% charged earlier. Software services will also attract GST of 18% against 15% service tax charged previously. All this has increased cost for the IT industry, but one of the good things about GST is the Input Tax Credit (ITC) that is available to IT traders selling goods and services.

8. Export of Goods and Services: Export of goods or services is considered as a zero-rated supply and therefore GST will not be applicable on any kind of goods and services. This helps the export industry to have intemationally competitive prices as there is an easy mechanism of claiming input tax credit and input tax credit is available on services.

9. Hospitality Industry: GST implementation has had mixed impact on this industry. Since it is one tax, there is an administrative ease while preparing bills, calculating taxes and clarity for consumers Also, the industry will get full ITC on their inputs. However, the total cost has risen a bit because GST is charged at 18% against demand of 5% for Indian hospitality to be able to compete against global tourism and hospitality industry

10. Insurance and Banking: Insurance premiums have risen after GST regime kicked in due to changed tax structure. Banking transactions have also become costlier as there is a GST charge of 18% against 15% earlier.

11. Coal: Previously the tax on coal turned out to be 12% inclusive of various types of taxes at different stages. Now, GST has brought down the tax to 5%. However, there are certain local taxes, environmental charges and couple of other hidden charges still applicable that have not been subsumed in GST Hence, the net reduction in taxes is in the range of 2-3% instead of a flat 7%. But this 2-3% tax reduction is also massive given the huge consumption of coal in the country and is benefitting the consumers.

12. Domestic Appliances and Electrical Machinery: Domestic appliances like fridge, TV, air conditioners and the likes have become slightly expensive after GST as the rate is fixed at 28%, which is 2-3% higher than earlier. However, the cost of commercial electrical machinery is expected to remain neutral.

13. Iron and Steel: Different products are charged with different taxes under GST. Household utensils have becomes cheaper while barbecue sets have become expensive. Sanitary items like taps, faucets etc. have also got costlier while laying of railway tracks has stayed neutral. In the short term, there is a higher cost involved in the industry due to transition phase, but in the long run, GST will be beneficial for the sector as well as the economy.

14. Tobacco Industry: Keeping in mind the health concerns related to the use of tobacco and tobacco products, GST applicable is 28% and there is an additional cess charged over and above this rate. The prices have gone up and there is an expectation that it might prove as a deterrent for tobacco use.

15. Air Fares: GST on economy tickets has been reduced from 5.6% to 5% that has effectively brought down the economy prices. However, for business class travellers, the tax has gone up from 8.4% to 12%

16.Cement Industry: Previously, the taxes turned out to be 24-25%, but GST will be applicable at a flat rate of 28%. This looks expensive, but the cost of operations for the cement industry will come down in the long run owing to various other benefits offered under GST regime.

17. Entertainment Industry: It is a mixed bag for the entertainment industry as it depends on the state and local taxes applicable therein. Owners of movie halls, parks etc. will stand to benefit owing to input tax credit. Also, for states with higher entertainment tax, GST will be good as ticket prices will reduce, but states where entertainment tax is already low, may see a spike in prices.

18. Rail Transport: GST applicable is now 5% compared to earlier rate of 4.5%. This has slightly increased the fares. But business travellers can claim input tax credit and get benefits. Similarly goods being transported by train can also claim for input tax credit to reduce their GST liability.

19. Life-saving Drugs and Other Pharma: GST has been charged under three brackets of 5%, 12% and Nil. Medicines coming under 12% bracket have seen prices increase by about 2.30% compared to earlier prices while those under 5% bracket have seen no change in the final price.

20. Furniture Manufactures: Whether it is wooden furniture or iron and steel, GST rates applicable has increased their prices, However, between the two, GST is more beneficial for wooden furniture makers due to lower incidence of tax applicable on them.

21. Fruits and Vegetables: Fresh fruits and vegetables do not attract any GST, but dry fruits and preparations from fruits and vegetables are now charged 12% and 18% compared to 5% earlier making them costlier.

22. Textile Manufacturers: While the tax rate has been increased on the textile industry and benefits under cotton value chain have been removed resulting in adverse conditions for the sector, in the long run GST will prove to be beneficial. This is because the industry will be more organised and regulated.

23. Job Work: GST has clearly defined the entire process of job work and clearly mentions that any input tax credit claimed under the process can be reversed if the set parameters are not met. There is more clarity on what's required from the supplier and contract worker along with clearly defined timelines.

24. Imports and Importers: GST has subsumed Countervailing Duty (CVD) and Special Additional Duty (SAD), However, Basic Customs Duty (BCD) is not part of GST and will be charged as per existing laws.

25. Healthcare and Pharma Sector: A total of 8 different taxes have been subsumed into one single tax

26. GST has also Improved the operational efficiency of the sector by rationalising the supply chain. GST is also resulting in lower manufacturing cost as well as reduced cost of technology

27. Wholesalers and Retailers: These traders mostly worked outside the taxation regime and generated what is called black money. However, GST implementation has forced them to be a part of tax structure and their ability to evade taxes or undercut will be reduced massively.

28. Freelancers: It is a mixed bag for freelancers. While GST will help them to be organised, the GST rate of 18% is higher than the previous tax rate of 15% and will also enforce compliance issues.

29.FMCG Sector: Previously, the tax rate applicable on the sector was in the range of 22-24%, but

after GST implementation, it has come down to an average of 18-20%. Some products have become costlier and some have become cheaper, but overall as a sector it has benefitted from GST.

30. Works Contract: In the earlier scenario, works contract was quite complicated with different components of services and goods becoming a part of it and taxation becoming quite complicated. However, GST has removed all such ambiguity and now work contracts will be treated purely as service and taxes will be applicable accordingly.

31. Automobile Sector: GST has resulted in lowering of taxes as well as reduction in multiple taxes being levied that lead to complications. Its impact is easily visible now with increase in sales and demand!

32. Small and Medium Enterprises: This sector was largely ignored for the longest time, but with GST, the sector will now have access to data that can be used to get better credit, improve on operational efficiencies, manage cash flows, improve on customer relationships and become the backbone of the country's economy!

33. Ecommerce Players: Whether it's the marketplace like Amazon or Flipkart or the thousands of sellers on these marketplaces, the GST compliance will increase their cost and complexity. However, in the long run, not only GST is poised to streamline their operations, but also provide trarisparent level playing field for all the players and result in business growth and profits by lowering the cost.

34. Logistics Industry: This sector has benefitted tremendously with the introduction of GST as the movement of goods has increased, warehousing needs of companies has come down and multiple taxes at different points of entry into various states has been eliminated. GST has come as a boon for this industry for sure

35. Food Services and Restaurant Industry: Initially GST charged 18% for AC restaurants, but even that has been brought down to 12% now. Overall, the impact of GST has been positive on both the consumers as well as restaurant owners purely due to reduction in taxes, but also because of simplicity of calculating the final bill.

36. Real Estate Sector: Ready-to-move-in properties are out of GST, but under-construction properties shall benefit due to uniformity of the taxes. Also, the major impact is transparency and accountability in a sector plagued by opaque operations.

37. Special Economic Zones (SEZ): While multiple taxes have been subsumed under GST, Basic Customs Duty (BCD) and Integrated Goods and Service Tax (IGST) is being charged on supplies made from SEZ

38. Banks and NBFCs: This sector is still awaiting further clarity and explanation on the norms being introduced, but as of now the entire operations have become complicated due to compliance issues

39. Stock Exchange and Stock Transfer: With the shift of taxable event from sales to supply consequentially stock transfers under GST would be taxed and this will be a mixed bag with certain industries benefitting from cost savings in procurements and some industries ending up paying higher costs.

40. Start-ups: GST is benefitting start-ups in various ways. One of them is the minimum threshold of Rs. 20 lakhs to be eligible for registrations unlike previous regime where minimum threshold for this sector was Rs. 5 lakhs. Also, there is a provision for lower taxes if turnover is between Rs. 20 lakhs to Rs. 50 lakhs. All in all, GST is a boon for start-ups.

41. Agricultural Sector: While taxes have been increased on a few of the products used in the sector,

in the long run such increased costs will be levelled out due to economical operations and creation of single national market.

As is quite evident, GST has been a revolutionary tax regime that is showing extremely positive impact on the economy and in the next 1-2 years, everyone will be reaping the benefits of this business-friendly law.

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