GST Impact Analysis on Manufacturers, Distributors and Retailers

GST Impact Analysis

GST is a single uniform indirect tax which has been introduced to replace Central and State indirect taxes such as VAT, CENVAT, and others. It applies to all types of businesses small or large. This has been one of the greatest tax reforms of Indian economy so far. It means that the entire nation will follow a unified tax structure. GST is applicable on both goods and services and India will follow a dual system of GST that will keep both center and state independent to each other.
The GST council is headed by the Union Finance Minister. It is devised as four tired tax structure with tax stabs of 5%, 12%, 18% and 28% for various different categories of product and services. More importantly, a 0% rate is kept for the most essential goods such as rice and wheat, etc.

GST is a boost to competitiveness and performance in India’s manufacturing sector. The decline in exports and increasing infrastructure cost are the major issues in this sector. As multiple indirect taxes had augmented the administrative cost for manufacturers and distributors, their replacement by GST has reduced the compliance burden thereby increasing the ease of doing the business. As a result of this, the economy is likely to grow more strongly. Due to the introduction of GST, the businesses which were not registered previously will now have to be registered. This could lead to the reduction of tax evasion and probable leakage of revenue.

Impact of GST on service providers
As of March 2014, there were 1276861 service tax assesses registered in the country. Out of these only top 50 paid more than 50% of the tax collected nationwide. Most of it was shared by giants such as IT services, telecom industries, banking insurance, and financial services and other business support services, etc. These pan India businesses who are working under a unified market will sustain lesser compliance burden. But they will have to register at every place of business in each state.

Sector-wise Impact
1. Logistics: – In a vast country like India, this sector is the backbone of Indian economy. It would be a fair assumption that the well organized and matured logistic industry of India would take a big stride in. “Make in India” initiative of Govt. of India to its desired position.

2. E-commerce: – In many ways, GST will help e-commerce sector’s continued growth but the long term effects will be particularly watchful because GST law specifically proposes “Tax collection at source” (TCS) mechanism, which e-com companies may not be happy with at the current moment, though the current rate of TCS is at 1%.

3. Pharma Sector: – On the whole, GST is benefiting the pharma and health care sector. It will create a level playing grounds for generic drug manufacturers to boost medical tourism and further simplification in the tax structure. However, the pharma sector is hoping for a tax respite as it will make affordable health care system that is easy to access by all.

4. Telecom: – Due to GST, the prices will come down. Manufacturers will save on cost through efficient management of inventories and consolidation of warehousing system. Handset manufacturers will find easier to sell their equipment’s because GST has eliminated the need to set up state-specific entities and transfer of stocks. This will cause a reduction in logistics cost.

5. Textiles: – The textile industry in India provides employment to a large number of skilled and unskilled workers in the country. It contributes about 10% of the total annual exports. This value would increase under GST. GST would also affect the cotton value chain of the textile industry which is chosen by most small medium enterprises as it previously attracted zero central excise duty (under optional route).

6. Real Estate: – This sector plays a pivotal role in employment generation in the Indian economy. The impacts due to GST in this sector largely depends on the tax rates. However, the sector will witness substantial benefits from GST implementation, as it has been brought to the much-required transparency and accountability.

7. Agriculture: – It is the largest contributor to the national GDP contribution of around 16 %. One of the major issues faced by this sector is the transportation of agri-products across state borders all over India. GST council is expected to resolve this issue of transportation soon.

8. FMCG: – Since the introduction of GST has eliminated the need for multiple sales depots, this sector is experiencing a major cut in logistics and distribution cost.

9. Freelancers:- Freelancing in India is still a nascent industry and the rules and regulations for this chaotic industry are yet to formalize. But with the introduction of GST freelancers would fund it easier to file their taxes returns online. They are taxed as a service provider and the new tax structure has brought coherence and accountability in this sector.

10. Automobiles: – This sector is actively fueled by the large population size of the country. Under the previous tax system, there were several taxes applicable to this sector like excise, VAT, sales tax, road tax, motor vehicle tax registration duty, etc. which now be absorbed by GST.

11. Startups: – With increased limits of registration, a “do it yourself (DIY) compliance model, tax credit on purchases and free flow of goods and services protects well for the Indian startups. Earlier, many starts had different VAT laws which were confusing for companies having pan- India presence, especially in eCommerce sectors. All such intricacies have been absorbed under GST.

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