Positive Impacts and Challenges of GST in Various Sectors – Economic News

-Author: Gunjan Prabhakaran

On this day, the Goods and Services Tax (GST) applies.) turns seven in Indiawe expect further simplification and positive effects of this tax system in various sectors. The implementation of GST on July 1, 2017 marked the most important indirect tax reform in India, replacing numerous indirect taxes levied by both the central government (such as excise duty, service tax, etc.) and state governments (such as VAT, entry tax, octroi, corporate tax, etc.). The pre-GST tax system suffered from various shortcomings such as tax cascading, complex regulations and multiplicity of taxes.

The introduction of the GST Act has had a profound impact on various sectors of the economysome of which are presented below:

1. Fast moving goods (FMCG) and Pharmaceuticals

A. Positive impact:

(i) Various taxes such as Entry Tax, Property Tax, Corporate Tax etc. have been brought under the GST Act, which has simplified pricing decisions and compliance

(ii) Removal of central sales tax has led to fewer storage points, better inventory management and a positive impact on working capital.

b. Challenges:

(i) Anti-corruption laws along with government actions to rationalize rates have led to significant demands on many companies, which has created pricing challenges for the industry.

(ii) Issues relating to discount schemes and promotional offers, including taxation, GST adjustments and eligibility of input tax credit. Additionally, the approach to returning expired products and its implementation is another area of ​​interest, especially in the pharmaceutical industry.

2. Information Technology (IT) Industry

a. Positive impact:

(AND). Under the previous indirect tax regime, software was subject to both VAT and service tax. The GST Act has resolved the issue of double taxation, providing certainty to taxpayers and resolving a sticking point.

(ii) Summary of VAT in GST and consequent availability of ITC brought significant cost savings to IT companies.

b. Challenges:

(i) Compliance processes and requirement for registration in all states where supplies originate, as opposed to centralized service tax registrations under the previous regime, have increased the compliance burden for IT companies. This expanded registration coverage also comes with the need to deal with GST authorities in multiple states and potential blockages of funds in case of refund claims in different locations.

(ii) The requirement for cross-payments in the case of centralised contracting created further complications.

3. Logistics industry

a. Positive impact:

(i) In the pre-GST period, different States had different procedures for movement of goods and supporting documents like waybills (where applicable). The GST Act has standardised the document requirements, making the documentation process easier. Removal of check posts has also helped reduce the transit time.

B. Challenges:

(i) Failure to include petroleum products in GST results in a cascading effect of taxes leading to higher costs.

4. Media and entertainment

A. Positive impact:

(i) One of the main problems of the media and entertainment industry has been double taxation, especially in the case of intangible assets. This problem has been solved under the GST regime.

(ii) Similar to other services sectors, the unblocking of credit through the inclusion of VAT in GST has a positive impact on the media and entertainment industry.

b. Challenges:

(i) Determining the place of supply of services, especially in the case of advertising services provided to the government, and apportioning fees appropriately is a challenge.

(ii) As with all service industries, compliance levels have increased in media and entertainment due to the requirement for multiple registrations and the consequent increase in the number of jurisdictions.

The list of issues or sectors is by no means exhaustive and many other positive developments or areas to consider exist in the above as well as other sectors. Considering the approach taken by the GST council in the recent past, the industry hopes that gradually the government will ease the unique issues faced by each industry.

(Gunjan Prabhakaran is Partner and Indirect Tax Leader at BDO India.)

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