The positive impacts and challenges of GST across sectors

The implementation of the GST on 1 July 2017 marked the most significant indirect tax reform in India, replacing numerous indirect taxes levied by both the Central Government (such as Central Excise duty, Service tax, etc.) and the State Governments (such as VAT, entry tax, octroi, local body tax, etc.).

On this GST Day, as the Goods and Services Tax (GST) completes seven years in India, we look forward to further simplification and positive impacts of this tax system across sectors. The implementation of the GST on 1 July 2017 marked the most significant indirect tax reform in India, replacing numerous indirect taxes levied by both the Central Government (such as Central Excise duty, Service tax, etc.) and the State Governments (such as VAT, entry tax, octroi, local body tax, etc.). The pre-GST tax regime suffered from various shortcomings such as tax cascading, complex compliances, and multiplicity of taxes. 

The introduction of the GST law has had a profound impact on the various sectors of the economy, some of which are outlined below:
 

1. Fast-moving Consumer Goods (FMCG) and Pharma

a. Positive Impact:

(i) Various taxes such as entry tax, octroi, local body tax, etc. have been subsumed under the GST law, simplifying pricing decisions and compliances 

(ii) The removal of the Central Sales Tax has led to a reduction in the number of stocking points, better inventory management, and a positive impact on working capital.

b. Challenges:

(i) The anti-profiteering provisions, along with the Government’s rate-rationalisation steps, have led to significant demands on multiple companies, creating pricing challenges for the industry.

(ii) Issues surrounding discount schemes and promotional offers, including taxability, adjustments from GST liability and eligibility of Input Tax Credit. Additionally, the treatment of return of expired products and its implementation is another area of concern, particularly in the pharma industry. 

2. Information Technology (IT) industry

a. Positive Impact:

(i). Under the previous indirect tax regime, the software was subject to both VAT and service tax. The GST law has resolved this double taxation issue, providing certainty to taxpayers and resolving a litigious issue.

(ii) The subsummation of VAT in GST and consequent availability of ITC have led to significant cost savings for IT companies. 

b. Challenges:

(i) The compliance processes and the requirement for registration in all states from where supplies are made, as opposed to the centralised service tax registrations under the previous regime, have increased compliance burdens for IT companies. This expanded registration footprint also involves dealing with GST authorities in multiple states and potential fund blockages in case of refund claims across locations. 

(ii) The cross-charge requirement for centralised contracting has added further complications. 

3. Logistics industry

a. Positive Impact:

(i) Under the pre-GST regime, different states had varied processes for the movement of goods and accompanying documents, such as waybills (wherever applicable). The GST law has standardised documentary requirements, easing the documentation process. The removal of check posts has also contributed to improved transportation times.

b. Challenges:

(i) The non-inclusion of petroleum products in GST results in a cascading effect of taxes, leading to higher costs.

4. Media and Entertainment

a. Positive Impact:

(i) One of the major issues for the media and entertainment industry was dual taxation, especially in the case of intangibles. This issue has been resolved under the GST regime. 

(ii) Similar to other service sectors, the unlocking of credit due to the subsummation of VAT in the GST has a positive impact on the media and entertainment industry.

b. Challenges:

(i) The determination of place of supply, especially in the case of advertisement services provided to the Government and splitting of charges accordingly is challenging.

(ii) Similar to all service industries, the compliances in case of media and entertainment have increased due to the requirement of obtaining multiple registrations, and consequent increase in the number of jurisdictional authorities.

The list of issues or sectors is by no means exhaustive and many other positive developments or areas for consideration exist in the above as well as other sectors. Given the approach adopted by the GST council in the recent past, the industry is hopeful that gradually the Government will ease out the unique issues faced by each industry. 

 

Source:- Financial Express