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How will the GST impact various sectors of the economy?

03 August, 2016

Once the goods and services tax (GST) is implemented, central taxes such as excise duty, service tax and customs duty will be subsumed within it. At the state level, the value-added tax (VAT), luxury tax, lottery taxes, entertainment tax and electricity duty, among others, will go as well. All direct taxes will, however, remain unchanged.

Here’s a brief look at how the GST might impact various sectors of the economy.

Startups: The prevalent system with different procedures and fees across different states complicates inter-state transactions. With GST in place, a uniform tax regime will make it easier to start new business. At present, any business with turnover of Rs 5,00,000 has to pay VAT. With GST, this limit will go up to Rs 10,00,000. Moreover, companies with turnover of Rs 10-50 lakh will end up paying lower taxes. E-commerce companies may have to contend with the lack of clarity in the definition of terms ‘aggregators’ and ‘operators’ in the

new bill. While operators will be liable to pay taxes, aggregators will not.

Agriculture: The GST will help make the agriculture market more efficient as all the taxes will be subsumed under a single rate, making the movement of agricultural commodities across states hassle-free. Transportation time and wastage, especially in case of perishables, will come down. Some experts, however, say that the GST may translate into higher agricultural prices, which will favour retailers but not farmers.

Manufacturing: The GST regime is expected to boost manufacturing since the removal of cascading taxation will bring down production costs. Easy movement across state borders will make the process of supply and transportation of finished products, and raw materials, among others, hassle free. On the flip side, however, compliance requirements may increase.

Telecom: The GST is expected to put an end to issues related to classification of software, franchise fee and SIM cards, among others. Like all other sectors, the elimination of duality of taxes is expected to help the growth of the telecom sector as well. However, if the proposed rate is higher than the current rate, it may hurt customers.

Pharmaceuticals: Warehousing plays an important role in this industry. In order to save on central sales tax, most pharmaceutical companies maintain their warehouses in different states, adding to the transaction cost and compliance requirements. Post-GST, pharma companies will be able to set up warehouses at strategic locations. The tax credit regime under the GST is expected to help reduce the cost of goods sold. On the other side, if the expected rate of GST is higher than the current tax rate on medicines, it may lead to medicines becoming costlier.

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How will the GST impact various sectors of the economy?

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