Goods and Services Tax (GST) Impact on Businesses in India

Goods and Services Tax or GST is an indirect tax regime used in India on the supply of goods and services. GST came into action on July 1st, 2017 through the implementation of the One Hundred and First Amendments of the Constitution of India by the Government of India. It replaced existing multiple taxes levied by the central and state governments.

GST has brought in a ‘one nation one tax system‘, it is a comprehensive, destination-based, multistage, tax and it has successfully subsumed almost all the indirect taxes except a few state taxes. The effect of this new tax regime on various industries is slightly different. The differentiation’s first level will come in depending on whether the industry deals with manufacturing, distributing and retailing or is providing a service.

Here we are going to analyse the impact of GST and we will also put our opinion whenever needed, So let’s get started.

Impact of GST on Manufacturers, Distributors, & Retailers

Goods and Services Tax is actually increasing competitiveness and performance in India’s manufacturing sector. However, declining exports, as well as high infrastructure spending, are a few of the concerns in this sector. Earlier there were multiple indirect taxes that had increased the administrative costs for manufacturers and distributors, But with GST in action, they are getting relaxation on compliance burden and due to it the sector is expected to grow more robustly.

After the implantation of GST, businesses which were not under any tax regime previously will now have to register. Thus GST is also avoiding the scope of tax evasion.

Read Also: Brief Guide of SGST, IGST, CGST with Input Tax Credit Adjustment

Impact of GST on Service Providers

As per the report of March 2014, there were 12lac+ service tax assessees in India but only the top 50 paid more than half of the tax collected nationwide. Most of the tax is collected by domains such as IT services, the Insurance industry, telecommunication services, business support services, Banking and Financial services, etc. All these pan-India businesses are already working in a unified market and will see a reduced compliance burden after GST. The benefits all come with GST also need an important step from the service provider side now they will have to separately register every place of their business in each state.

Now after explaining the Impact of GST on Manufacturers, Distributors, Retailers and service providers let’s take a look at Sector-wise Impact Analysis.

Sector-Wise GST Impact Analysis

GST Impact on Agriculture

As you already know With around 16% of the Indian GDP, the agricultural sector is doing the largest contribution to the overall Indian GDP. But it doesn’t mean that everything was profitable in this sector Before the GST one of the major issues of this sector was the transportation of agri-products across state lines all over India. GST with less taxation is helping but it is still much, thus it is expected through GST to resolve the issue of transportation

GST Impact on Automobiles

There is a huge benefit to GST on Cars. GST actually provided the best benefits to the buyer and almost every part of this sector. The Indian automobile industry is a vast business producing a large number of cars annually. There were several types of taxes applicable to this sector like excise, VAT, sales tax, road tax, motor vehicle tax, and registration duty before GST but now everything is adjusted in GST. Buyer has to pay extra cess rate along with applicable GST.

Read Also: GST Impact on Cars and Spare Parts Industry in India

GST Impact on FMCG

The FMCG sector is also getting some benefits due to the new taxation regime, It is experiencing notable savings in logistics and distribution costs. It happens because the GST has eliminated the need for multiple sales depots.

GST Impact on Freelancers

Freelancing in India is still not a vast industry, thus the rules and regulations for this growing industry are still up in the air. GST’s online scheme makes most things much easier for freelancers to file their taxes online. In the GST regime, they are taxed as service providers, and the new tax structure brought clarity and accountability to this sector.

GST Impact on E-commerce

The Ecommerce sector is growing rapidly in India and GST is supporting the e-com sector’s continued growth In many ways, the long-term effects are going to be particularly interesting because the GST law introduces a Tax Collection at Source (TCS) mechanism. E-commerce companies are not too happy with TCS now however currently the rate of TCS is at 1%. Recently a new section is included, section 194-O defines the applicability of TDS on E-commerce transactions.

GST Impact on Logistics

India is a vast country and probably the logistics sector forms the backbone of the economy. We can easily assume that a well-established and mature logistics industry has the potential to give a boost to the “Make In India” initiative of the Government of India to a desired and suitable position soon.

GST Impact on Pharma

If we observe the performance of the pharma and healthcare industries then we can clearly see that the GST is benefiting these industries. The GST created a level playing field for generic drug makers and also boosted medical tourism. Additionally, It simplified the tax structure. However, there is a concern related to the pricing structure only and the sector is hoping for a tax respite, and if it happens then it will make healthcare easier, affordable and within reach of everyone.

GST Impact on Real Estate

It is one of the most pivotal sectors of the Indian economy, Real Estate is playing an important role in employment generation in India. The impact of GST can’t be seen soon due to the dependency on tax rates. However, the real estate sector will see substantial gains from Goods and Services Tax implementation, because it brought transparency and accountability to this sector.

GST Impact on Startups

It brings some beneficial changes already for this sector such as increased limits for registration, a DIY compliance model, tax credit on purchases, and a free flow of goods and services. Before the GST, many Indian states had their own different VAT laws which were confusing for companies that have a pan-India presence, especially in the e-commerce sector. Most of the issues have been solved under GST.

GST Impact on Telecommunications

We have seen a bit of price cut in this sector too, but due to the regular changes finding the accurate answer is hard. However, in the telecom sector, prices decreased after GST for some time. Manufacturers will save costs through efficient management of inventory and by combining their warehouses. Similarly, it will be much easier for Handset manufacturers to sell their stuff or equipment as the GST system has negated the requirement to set up state-specific entities, and transfer stocks which will result in saving up on logistics costs.

GST Impact on Textile

With a contribution of about 10% of the total annual export, the textile industry contributes to the employment of a large number of skilled and unskilled workers in the country. The good news is that the contribution value is expected to increase under GST. GST is affecting the cotton value chain of the textile industry which is preferred by most small-medium enterprises because it previously attracted no central excise duty (under an optional route).

That’s it for today, There is a positive impact of GST in most sectors thus it is beneficial for everyone but there is still some concern with GST that needs to be solved as quick as possible. Keep visiting for more updates.