The GST Tax has been hailed as the one of the biggest indirect tax reforms in India since independence. With the inclusion of this 122nd Amendment Bill in the Rajya Sabha and its possible ground launch by July 2017, it will soon become a reality. In this article the impact of this new bill on various goods and services will be explained.
In a gist, consumer durables, FMCG products, readymade garments, electronic items and luxury cars will be cheaper. On the other hand, insurance and banking services, mobile phones, and air travel and telephone bills will become more expensive with higher tax. The regime for this new tax laws is expected to start from 1st July 2017. Below are the major industries and how the GST impacts them:
See Also: GST Timeline up to date
At present, the rate tax for this sector is between 7% and 30%. With the GST implementation, those companies without having availed any tax exemptions in the past will be essentially benefitted.
The existing price-gap between the unorganized and organized sector will be reduced. Some of the key beneficiaries might be Blue Star, Voltas, Bajaj Electricals, and Hitachi etc.
Furnishing & home decor
At present, the ETR (effective tax rate) for this industry is above20 %. With the GST implementation, construction chemicals and paints are expected to benefit from the lowering of tax rates.
The reduction in price differences between the organized & unorganized sector will ensure opportunities for both. The unorganized industry will come within a uniform tax-base.
GST implementation in this sector will result in lesser transit time; thereby truck utilization will be higher. Demand for high tonnage Lorries and trucks will be high and overall transportation costs will be reduced.
The bill will facilitate seamless interstate goods flow, which in turn will enhance the overall logistics demand. With the reduced cost competitiveness, smaller players will also have a chance to grow and develop in this sector.
At present cement tax is between 27 % and 32 %. Under GST, tax rate will probably reduce to 18-20 %. This will ensure transportation cost savings which take up almost 25 percent of this total business. Thus, overall revenue of cement firms will improve substantially.
Entertainment is majorly categorized into multiplex & media. Both the sectors will be significantly affected after GST implementation. Multiplexes have many categories such as entertainment tax, service tax & VAT.
At present, the tax is between 22 % and 24 %. The taxes are expected to reduce to 18-20 %, which in turn, will increase the ATP (average ticket price) for generating revenue.
At present, the media tax is between 20 % and 14 %. This includes entertainment tax around 5-7 % and service tax around 14 %. After GST implementation, the tax rate applied will be lower for DTH provider & higher for broadcasters. At present, the print and news sector are exempted from indirect taxes. With GST, a concessional rate is expected to be introduced.
At present, the ETR (effective tax rate) for this industry is between 6-7 %. While there is no clarity regarding the rate that will be introduced in this sector, a high output tax will negatively impact the companies.
See also: Overview of GST – Recent Updates on GST
While government is promoting Goods & Service tax as a breather and as a benefit for the common people, it is too early to predict anything. Only after the bill lands next year, ground realities will come out.