Positive Impacts and Challenges of GST Across Sectors – Economic News

– By Gunjan Prabhakaran

On this GST day, as Goods and Services Tax (GST) completes seven years in India, we look forward to further simplification and positive impacts of this tax regime across sectors. The implementation of GST on July 1, 2017 marked the most significant indirect tax reform in India, replacing numerous indirect taxes levied by both the Central Government (such as Central Excise Duty, Service Tax etc.) and State Governments (such as VAT, entry tax, octroi tax, council tax etc.). The pre-GST tax system was characterized by various shortcomings such as tax cascading, complex requirements and multiplicity of taxes.

The introduction of the GST Act has had a profound impact on various sectors of the economy, some of which are described below:

1. Fast moving consumer goods (FMCG) and pharmaceutical products

a. Positive impact:

(i) Various taxes like Entry Tax, Octroi Tax, Local Tax etc. have been brought under the GST Act, which simplifies 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-gambling regulations and government actions to rationalize rates have led to significant demands on many companies, creating 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) The aggregation of VAT in GST and the consequent availability of ITC have led to significant cost savings for IT companies.

b. Challenges:

(i) Compliance processes and the requirement for registration in all states from which supplies are made, as opposed to the centralized service tax registrations under the previous regime, have increased the compliance burden for IT companies. This expanded registration area also includes dealing with GST authorities in multiple states and potential funds holds for refund claims in different locations.

(ii) The requirement for reciprocal fees for centralized contracting has created further complications.

3. Logistics industry

A. Positive impact:

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

B. Challenges:

(i) Non-inclusion of petroleum products under GST results in a cascading tax effect 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) As with other service sectors, credit unlocking through GST subsuming 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 accordingly 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 Leader of Indirect Tax at BDO India.)

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