GST – The introduction
GST, The Goods and Service Tax, is an upcoming taxation system to be introduced in India, which is going to merge many individual applied taxes and will pave a new reform in the taxation of India into a single tax. Considered to be the biggest tax reform of the country, ever since the country got its independence, the GST was introduced in the constitution as the 101st amendment act of 2016. Governed by the GST Council, featuring the chairman as Arun Jaitely, the Union Finance Minister of India, the GST will be implemented across the Country from 1st June, 2017.
The GST is a collective indirect tax, which is to be levied on various goods and services uniformly throughout the country and is focused on successfully replacing the different and un-uniform tax as levied by the Central and state governments of the country. Providing the greater control on the tax charge, the GST will be under the control of a single authority.
Considered to the most significant approach in the reform of the indirect taxation in the country, the GST focus on the amalgamation of various taxes into a single one and thus providing a facility for a common national market.
GST around the world
One would be surprised to know that in the entire world there are around 150 countries, which have already adopted the GST taxation much before India decided to include in its taxation system.
Here are the GST rates all around the world (Major Nations):
Adoption of GST
India is believed to adopt the dual modal of GST (same like that of Canada), which means that the taxation will be administered by both the Union and State Governments. All transactions, within the particular state will be levied with Central and state government concerned; thus pushing towards the Central GST (CGST) and State GST (SGST). For all transactions belonging to the interstate, an integrated form of GST, widely popular as IGST will be levied by the Central Government. This IGST allows the state to collect the tax owed to them directly from the Government at Centre with greater ease in comparison to the previous condition, where the state has to deal with various states to collect tax revenue.
Taxes to be bound together by GST
The GST will bring together, the following taxes under one umbrella:
Central Excise Duty
Special Countervailing Duty
Central Sales Tax
Value Added Tax
Taxes applicable on lotteries
Advantages as Proclaimed
Ever since the GST came into light, lots of things have been said about it. Some were the positives, while the others were the negatives or downside of GST.
The advantages of the GST can be listed as follows:
The GST will facilitate towards the national common market.
The simplicity of the taxation will ease the administration and its enforcement.
The reduction of overall tax burden on Goods and Services, which is at present estimated to be around 25%.
The free movement of Goods from one place to another, especially cross border of states and thus, the speedy would be the transportation.
Reduction in the paper work to a great extent will be another benefit associated with the GST Implementation.
As per the prediction, the overall economic growth of at least 2% is anticipated, once GST is implemented
A transparency will be introduced along with the widening of the tax regime
A major cost competitiveness of goods and other services will be improved and would free up the manufacturing sector from the grasp of cascading effect of taxes
It would bring down the prices of goods and services and thereby, increase consumption.
A business friendly environment will be the future of India, thereby increasing the tax- GDP Ratio
The business scenario will be eased up and people will be motivated enough to do their business with the ease of taxation and no complexity of taxation process
The regulation of unorganized sector will be done since the GST has provisions for online payments and compliances. The sectors like real estate and textile, which are highly unorganized, will gain a stronger foothold and better accountability and regulation will be introduced in these sectors.
The increase in efficiency in logistics will be achieved through GST Reform of taxation in India. As soon as GST will go lie across the nation, the restrictions of the interstate movement of Goods will ease out. The logistics sector will start consolidating warehouses across the nation, and more such operators and ecommerce business will be motivated towards the better business scope.
The days of the running below their capacity will be gone with the implementation of GST
More profits will be achieved for such industries as reduction in unnecessary logistics costs will increase the overall profits of the business
With the GST, here comes a defined treatment of ecommerce. Since, there were no provisions for better treatment of ecommerce sectors, with the advent of GST, these industries will get a better face and all differential treatments and confusing compliances will be shed off with the coming of GST at the national level. There will be no compliance in regard to the interstate movement of goods with the advent of GST and thus, the GST will be putting a better provision of the ecommerce sector in the entire country and will help out these industries in performing better in comparison to the present scenario.
The GST has put forward a simple procedure for filing returns and payments of taxes. With the entire focus on Online WAYS, the businessmen don’t have to run through offices of the taxes departments to get their various registrations done under the departments like Service Tax, VAT and excise.
The GST also has an optional scheme of lower taxes for small businesses with turnover between Rs. 20 to 50 lacs, which is called the composition scheme and thus bringing a breathing space to many small business owners from tax burdens
Recent proposals as recommended in GST
Here come the recent proposals as given in GST. The government has categorized around 1211 items under the various tax slabs as accordingly to the GST Scenario. While, the broad range of the tax rates varies from as low as 5%, the highest can be seen being fixed at 28%. Some items in the form of milk, eggs, fresh fruits, vegetables, fresh meat, fish, chicken, stamps, judicial papers, printed books, newspapers and other such are left alone/exempted. A great number of goods & services have been kept under the 18% tax slab.
Here is the detailed report on how GST will impact us on goods and services ranging from our daily basis items to the others.
Grains: Items like Wheat and Rice will be cheaper after the implementation of GST.
Milk: There is no change in the milk and Curd, and these items are left out of tax as they were before.
Soap and Toothpaste: These will come cheap as these are charged around 22 to 24% presently. After the implementation of the GST, they will see the tax rate of around 18%.
Hair Oil: These will come cheap as these are charged around 22 to 24% presently. After the implementation of the GST, they will see the tax rate of around 18%.
Life saving Medicine: The 5% tax rate will be applicable as it is present now
Sugar: The tax rate of around 5% will be applicable as it is present now
Coffee and Tea: The same 5% tax rate will be applicable, which is almost the same as of now
AC and Fridge: Kept under the tax slab of 28%, they will be costly in comparison to the ones, they are now!
Petrol, Diesel and LPG: They are exempted under the GST and no charges will be applicable on them
Pan Masala, Gutkha, Tobacco and Cigarettes: These will cost you more after the implementation of GST. So, don’t you think, it’s the best time to quit these bad habits (if not for Health concerns, at least for your financial reasons!)
Aerated Drinks: These will now fall under 28% tax slab, thus will push the rates towards the higher side.
Cars: Regarding Cars, tax of around 28% will be applicable and will also incur ‘CESS’. As of now, there is an excise duty of around 12.5% on small cars and also bears around 14.5 of VAT, thus pushing the total tax to around 27%, in the present scenario. However, after the implementation of the GST, the tax rate of around 28% will be charged, thus concluding that the Cars will be dearer than it is now. Also, don’t forget the impact of CESS. Thus, the small cars will be costly after the implementation of GST. However, the cars featuring 1500 CC and more, draws the tax rate of 41.5% to 44% as of now, but after the implementation of the GST, the total Tax rate, which is 28% and additional CESS of around 15%, thus bringing the total to 43% tax rate, concludes that these will be cheaper.
Coal: The tax rate under GST will go down from the present 11.7% to 5% and thus pushing the rates down under the new system of GST.
Steel Products: The steep products will come cheaper, also because the coal prices are to go down and steel plants uses coal as the source of power.
To make things easier for you, here we classify the things as per the tax rates brackets:
No Tax Slab
Goods: No tax will be incurred on items like Fruits, vegetable, bread, Prasad, Salt, Fresh Meat, Fish, Chicken, eggs, Milk, Butter milk, Curd, Natural Honey, Flour, Besan, Bindi, Stamps, Sindoor, Judicial Papers, Printed Books, Newspapers, Hand loom, bangles and many other such items.
Service: Hotels and lodges below Rs. 1000 and other such services are exempted under the new tax system of GST.
5% Tax Rate
Goods: Items such as skimmed milk powder, fish fillet, cream, pizza bread, branded Paneer, frozen vegetables, coffee, tea, spices, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats is going to attract tax of 5%,
Services: In terms of Services, the transport services like Railways and airways, along with small restaurants will fall under the 5% GST Slab.
12% Tax Slab
Goods: All Frozen meat products along with fruit juices, butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, Bhutia, namkeen, Ayurvedic medicines, tooth powder, agarbatti, coloring books, picture books, umbrella, sewing machine and cellphones will be under 12 % tax slab.
Services: Services at AC Hotels along with Business Class Air Tickets and Fertilizers and Work Contracts will come under the 12% tax slab.
18% Tax Slab
Goods: Most items are under this tax slab, include flavored refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books, steel products, printed circuits, camera, speakers and monitors.
Services: All AC hotels,s which serve Liquor along with the Telecom & IT services and branded garments falls under this category.
28% Tax Slab
Goods: Chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, will attract 28 % tax – the highest under GST Tax Slab.
Services: The services on 5-star hotels along with race club betting and cinema will attract tax 28% tax slab under the GST, the maximum in the category.
Here is one illustrative diagram, which we found out. Check it:
Impact on Real Estate
A very important sector for the people of India and also for the progress of the country, one must remember a fact that “Even a slight increase in taxes can substantially increase the costs of real estate”. In the initial phase of the GST Implementation, it looks like there will be no such highly evident impact seen on the real estate.
The reports suggest that the work contracts, which will now attract the interest rates of 12%, but while the most of the construction materials come under the 18% tax slab and 28% tax slab, with the availability of input tax credit, the things will be neutralized and no such visible impact will be felt on the real estate with the implementation of GST. However, in case, a person decides to buy an under construction apartment or get a house built through a builder, the person has to pay a service tax on the cost of construction and as per estimates the value will be around 30% of the property’s value.
A report suggests that with the taxes and stamp duties, it is more likely that the cost of the property will increase by about 15% to 18%. However, days are remaining and what new announcements can be made is not clear. There may be some news coming in, which can turn the winds in the opposite direction. Only the time will tell, what lies in the future!
Impact on Finance Sector
The finance sector, which holds the nerve of the country’s performance, is also going to see a major change with the coming of GST. The transaction fee in the financial sector is more likely to go up as the services are categorized under the 18% tax bracket in comparison to the present 15% tax. Thus, it means that for every Rs. 100, a customer has to pay Rs. 3 more for the various financial activities like Banking Transactions etc.
It is also reported that the insurance premiums will also cost dear to the people. However, the complete dearer cost will depend on the structure of the premium policy and on what category, the premium belong to (if they belong to the risk or investment!)
Under the new reforms, the banks need to register the branches state wise, which until now were registered through the headquarters of the bank, thereby increasing the compliance cost of the banks in the initial stage.
The financial services will come under the 18% tax slab under the newly announced GST Scheme. Here is how the GST will impact the financial transactions along with your investments.
All the expenses in case of mutual funds are incurred by the asset management companies and there are several components which attract service taxes. As soon as GST will be implemented, the total expense ratio will go higher. The actual charge to an investor will surely go higher and is more likely to increase by about 3 to 4 basis points. The people are already paying up the service charge of around 10 to 15% and now, they have to shell out the additional 3% of the service charge after the implementation of GST.
The GST will also show its effect on the insurance policies and the premiums for the life insurance and all general insurance policies is going to come dearer after the implementation of GST. As you already know, that the effective service rate differs based on the type of life insurance policies you select, the same will be applicable here. The service charge which is levied on the entire premium of a live cover insurance plan, the products like Ulips levies tax based on charges only. Since, the tax has now gone up to 18%, the tax rate of 18% will be applicable on Ulips on the charges as applicable. While, in the case of several other savings and other investment plans, the tax will be on the higher side and will shoot up from 3.75% (which is present at this moment) to around 4.5% of the first year term. The same goes from 1.87% to 2.25% on the premium from the second year.
To make it easier to understand, take a case where your premium for term insurance policy is around Rs. 20000; after the implementation of the GST, You need to shell out an additional Rs. 600. However, there are talks of some reliefs to be provided to the consumers and time will tell what new relief can be given to the consumers in this regard.
Following the same path, all general insurance policies can also get more expensive and the customers have to bear the tax rate of around 18%, which at present stands at 15%. However, with the input tax credit, which will be applicable after the implementation of GST, the burden can be eased off.
One must remember that the things are still not very clear on all aspects and there are certain things, which still needs clear clouds. Since, there is a differential rate of taxation in the insurance based products, the things are still not very transparent over if the small ticket policies and other government sponsored and promoted insurance policies will be kept off from the tax brackets under the GST Scheme.
All the services like ATM Transactions (after the free transactions) and other charges like non maintenance of minimum monthly average balance, which attracts charges and fees, will now force customers to cough up the service charge of around 18% in place of 15% services charge present today. However, a news of relief coming from several reports suggests that the effect of tax credit offset, will soften up things very soon and customers will be offered a wind of relief.
Watch out for the impact closely, when the country switches to the GST regime. The Country will see the biggest reform in the taxation in its entire history and you’re the lucky one, who is going to witness it!