A revolutionary change is about to hit Indian Economy in form
of GST a.k.a Goods and Services Tax!
As per the Constitution Amendment Bill, multiple existing
indirect taxes will be replaced by uniform GST and will be applicable all
across India, commencing 1st July, 2017.
In a way this is a welcome move by the government as the
existing indirect tax structure proved to be less fruitful and worked as an
impediment in nation's economic growth. CST, entry tax, restricted input tax
have divided the economy in fragments. Multiple taxes in complex structures
elevate the cost of compliances, and hence, the businesses are affected
adversely. Thus, the enforcement of GST is going to be a crucial step and is
speculated to have a positive impact on current economic scenario. Also, it is
likely that some sectors will see a greater impact than others.
Why is that so?
What are the other positive or negative impacts of GST?
How is it going to help the tax structure and economy thereof?
To get a clear insight, let us discuss the top 10 profit loss
differences that you need to know before 1st July, 2017:
1. Profit - Boost in Production and Efficient Supplies
The replacement of various tax barriers with a uniform tax
entity across the country will propose a seamless credit. This change will
introduce India as a common market with boosted production and efficient
supplies. The expansion in trade and commerce is quite anticipated as GST is
going to have a positive impact on organized logistics industry and modern day
2. Profit - A Boost to "Make In India"
With this seamless tax introduction, the cascading tax effect
levied on the cost of production and cost of services, will be eliminated. The
cost of goods and services will significantly go down while encouraging the
concept of "Make in India". The lure for foreign products shall
diminish eventually when good quality products are made available in Indian
market. The sectors that will see an uplift with regards to "Make in India"
and new tax implementation are FMCG, Pharmaceuticals, Consumer Durables,
Automobiles, and Engineering Goods.
3. Profit - Ease of Business
It is a well foreseen situation that introduction of GST will
bring in a lot of ease with regards to business processes. When various
multiple tax entities will get integrated in single GST, a huge number of
procedures and costs pertaining to those procedures will be reduced and hence
the functioning shall become smooth.
4. Profit - A Boost To Investments: Elevated Jobs
With a transparent and well predicted tax system in place,
local and foreign investors will be encouraged to invest in Indian industries
which, in result will create a good number of employment opportunities. The
financial, economical and social status of the citizens will see a considerable
5. Profit - Reduced Corruption
With the implementation of GST, the processing of tax
returns, payments and refunds will be monitored electronically which will
reduce the human interference to a extensive level. There will be a built-in
check on all business transactions, as offered through seamless credit, and all
ITR processing will be under efficient control. There will be no scope left to
generate black money, and the available capital will be used productively and
judicially. With this, the corruption and frauds related to business
transactions and taxation will go down, resulting in augmented financial and
economic situation of the entire nation, and citizens therefore.
6. Profit - Lower GST Rates
Product and area based tax exemptions will witness a
substantial low under GST. Consequently, the revenue neutral rate will go down
as the tax base is widened. Hence, the government will be encouraged to keep
the taxation slabs and rates considerably low, further reducing the prices of
goods in medium slab.
7. Profit - Elimination of Double Taxation
Currently, due to tax dispute on the nature of transaction,
whether it should be taxed for supply of goods or provision of services,
certain sectors face double taxation. These sectors can be identified as
licensing of intellectual properties, patents, copyrights, software supplying,
e-commerce trade, and leasing services. These sectors will benefit as the
double taxation will be eliminated and they will be paying a single tax under
8. Loss - Increase in Documentation
While this prolific implementation is going to simplify the
tax structure immensely, there is a down side to it too. The procedural
documentation for any business will increase manifolds, to keep the relevant
supporting papers in place as the number of business tax returns to be filed in
a year will increase substantially. Just for an example, a real estate builder
will be required to file 61 returns in a year as compared to 24 in current
system. Also, in the prevailing system, a business offering services from
various states can file a centralized tax registration. This will alter under
GST. A return from all the states from which a business is functioning, will be
required to be filed.
9. Loss - Impact on Cash Flow and Working Capital Due To
Businesses that require to maintain a high inventory of goods
in different states will experience a negative impact. Their cash flow and
working capital will see a reduction, as they will be mandated to pay full rate
GST on moving the stock from one state to another. The current system levies
CST/VAT on sales only and not the stock transfers from state to state.
10. Loss - Lesser Benefit of GST to Some Sectors
The business sectors which survive on significant inputs from
plastic and polymer industry, fertilizer industry, metal industry, telecom
industry, air transport and real estate will not be able to reap the full
benefits of GST. The reason being, all the indirect taxes will not be subsumed
in GST on the introduction. Electricity duty, stamp duty, excise duty, and VAT
on alcoholic beverages, petroleum based products and likes will not fall under
GST. These will form a part of cost of production goods which are used as
inputs in downstream products. Hence, the loss.
The industries that will be impacted adversely in terms of
inflation would be telecom, banking and financial services, air and road
transport, and real estate development.
It's true that GST is eagerly awaited and dreaded at the same
time. Yet, there are greater profits and lesser losses, which eventually will
write-off as the system comes in place and starts to smoothen the deep embedded
Let us just wait and watch till the next quarter gets over in