GST Impact across Sectors
The Goods and Services Tax (GST), for sure makes businesses gain overall by reducing costs of logistics for both finished goods and raw materials, which is one of the major direct costs for multiple industries today. Certain organizations will gain more as the GST rate will be lower than the current tax rates they pay. Let’s look at the likely impact across sectors.
GST Impact on Automobiles Sector
GST eases logistics hurdles, reduces time at check-posts, and subsumes local taxes. With fleet productivity increasing, operators may not feel the need to expand mid-term. Auto could slightly be a mixed bag as the impost will vary across categories. With the standardization of GST for automobiles at 28%, two-wheelers and small and medium cars may face a higher impost. “While this may be slightly negative for players like Bajaj Auto, Hero MotoCorp, Maruti, etc, we believe that this will be passed on to consumers,” Angel Broking said. Among the commercial vehicles space, Ashok Leyland may see higher GST.
Transfer of vehicle to other place will be liable for GST if the transfer is in the surge of inter-state trade. GST registration number is obtained for separate dealerships and the supply transfer between such dealerships will also be liable for GST.
GST Impact on Banking Sector
Public and private banking industry is the reflection of mixed economy. After GST implementation, increase in credit pool is witnessed due to availability of GST credits on purchase of goods. Also, banks witness a rise in operating expenses from this.
The banking sector’s net tax rate is 14% and by the effect of GST, the rate increased from 18% to 20%. The effective tax rate for free-based services at banks raised to 18% from the 15%. This moderately increased costs for loan processing and credit card charges. For every transaction in GST, the bank needs to determine the place of consumption where GST will be paid.
GST Impact on Manufacturing Sector
The manufacturing sector endures to gain more than losing with the GST implementation of India. Overall reduction in the cascading effect of taxes should have a positive impact on the price of manufactured products. Read to know more about Impact of GST on Indian Manufacturing.
Concerns still arise on specific issues such as the additional 1% original tax, increased cash flow issues and increased costs owing to exclusion of petroleum fuels from the GST realm. Although Input Tax Credit will be available to be claimed but its realization will only occur once the final supply is concluded. This impacts manufacturing segment due to disruptions in cash flow.
GST Impact on Aviation Sector
The lowering of tax rate on economy class travel is in accordance with the focus of the Ministry of Civil Aviation to make flying affordable for the crowds. Also, under GST, airlines can claim input tax credit on all inputs on the business class; for the economy class, they can claim input tax credit only on input services.
The GST on the economy class air travel has been finalized at 5% and GST on business class air travel has been announced to be 12%, which is 3% more than the existing service tax rate.
GST Impact on Logistics
The priority for Layered Service Provider (LSP) has remained on tax and administration optimization, mostly compromising on achieving higher operational efficiency through structured large warehouses planned in centralized geographic locations that gives better connectivity. FMCGs that are currently paying around 24-25% of tax, including excise duty, VAT, etc. will only shell out 17-19% with GST, therefore generating lot of potential for progress and open doors for investment in the industry. The border checkpoints reduce transport hassles and enable logistics companies to deliver goods more efficiently and optimize delivery time. This leads to a reduction in distribution costs by 10-15%, thereby lowering the final price of the goods.
State-border checkpoints negatively impact the overall production and logistics time. This accounts for approximately 60% of a truck’s transit time. These sterile transit hours coupled with regulatory impediments reduce the efficiency of Indian manufacturers compared to their international counterparts.
GST Impact on Entertainment (5-Star Hotels, Casinos, Multiplexes and Cinemas)
Well, the industry for sure doesn’t see a positive impact with the highest tax rate of 28%. It is being said that this will directly hit the service provided.
With the highest tax rate slab of 28%, the sector looks the most upset and says the government has probably categorized watching movies a ‘sin’.
GST Impact on Telecom Sector
The tax rate has been added as 3% on the existing which isn’t a lot of change for the sector.
The sector sees it as a bigger impact though and there is a lot of hue and cry for the increased 3%. It is expected that the call charges and data rates will go up.
The GST is a landmark amendment in the indirect tax regime in India that attempts to kill multiple birds with one stone. Designed to avoid the cascading of taxes, it implements a smoother tax structure in order to encourage better tax compliance. The important rule of GST is destination-based taxation that aims to subsume various existing indirect taxes like the excise duty, service tax, countervailing duty, etc. at the Central level and Value Added Tax (VAT), Octroi tax, Purchase tax, etc. at the state level.
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